Senate committee on banking, housing and urban affairs will come to order. I welcome our witnesses to todays hearing is in a hybrid format. Members have the option to appear either in person or virtually for those joining remotely if a a few reminders. Reminders. Members are we know how to do this after many times. For a revote what has please try to minimize background noise, click the new button until its your turn to speak. You will have one box on your screen labeled clock that was shot much time of your five minutes is remaining of the questioners five minutes. You will hear a bill ring when theres 30 seconds remaining. Ifif theres a technology problm we moved to the next witness or senator. The speaking order is as usual determined by seniority of the members of check in before the gavel either in person or remote and we go back and forth between republican and democrat. A few years ago most people had never heard ofe crypto currency most people still dont know what all these terms mean, from stablecoins to nonfungible tokens. But theyve become a hot topic in washington, and on wall street, and online, among millions of americans who, understandably, dont trust big banks, and are looking for ann opportunity to make money. Over the last several years, the number of cryptocurrencies has exploded from the hundreds to the thousands. S, the supposed value of all of these Digital Assets in circulation recently passed three trillion dollars. Which is. P about the size of Jp Morgan Chase is balance sheet, our largest nations largest bank. With that much money tied up, thats pretty much thehe definition of a systemic issue in our economy. And those big numbers have come with big promises. Weve been told that blockchain, the technology these coins are built on, will democratize money, or build a more inclusive economy. But none of those promises have materialized, and likely never will. Instead, weve gotten wildes financial speculation. As weve heard before in this committee, the wild price swings and high transaction fees for many cryptocurrencies make them useless for payments, the one thing they claim to be designed for. Stablecoins were supposed to solve this problem. Or unlike other cryptocurrencies, their value isnt just based on market enthusiasm, a stablecoins value is supposed to be backed by real assets held by the company that issues the stablecoin. In other words, stablecoins are a particular type of cryptocurrency whose value is managed by a single company. These include tether, circle, and abracadabra, a fastgrowing scheme that makes magic internet money. Their words, not mine what could possibly go wrong with something that claims to be magic money . Cryptocurrencies advocates argue that Crypto Assets are superior to real dollars, because they are decentralized and transparent. But stablecoins are neither. Most of them, and certainly the largest ones, rely on a single, centralized company to manage the reserve assets and their supply of coins. That sounds a lot like what traditional Financial Institutions do. Its not decentralized when one Company Controls when people ca. Access their own money. And its certainly not transparent when critical information about stablecoins, and the companies that issue them, isnt available to people who have their money tied up in these assets. Last month, i wrote to some of the biggest stablecoin issuers to get more information on how they manage the funds that back their coins, and to ask what rights their users have. Their responses were not very enlightening and should lead us to assume most ordinary customers dont have much in tho way of rights at all. So lets be clear about one thing if you put your money in stablecoins, theres no guarantee youre going to get it back. They call it a currency, implying its the same as having dollars in the bank, and you can withdraw the money at any time. But many of these companies hide their terms and conditions in the fine print, allowing them to trap customers money. And if theres no guarantee youll get your money back, thats not a currency with a fixed value, its gambling. I and with this much money tied up, it sure looks to me like a potential asset bubble. Stablecoins make it easier than ever to risk real dollars on cryptocurrencies that are at best volatile, and at worst outright fraudulent. Just a few weeks ago, we saw how quickly these tokens can crash, with crypto markets diving by almost thirty percent in one day. History tells us we should be very concerned when any investment becomes so untethered from reality. Look at the 1929 stock market crash. Securities started out as a way for regular americans to invest in new companies that wanted to bring new products to market or expand their operations. By the end of the decade, companies were invented out ofth thin air, to create more stocks to satisfy wild demand. Banks allowed customers to borrow against one stock to buy another, until the whole market collapsed. And of course we should all remember the 2008 crash. Subprime mortgages were supposedly created to give more families access to the american dream, while derivatives were created to help Financial Companies reduce their risks. Ac in reality, predatory mortgages were used to strip homeowners of the equity they had in their homes in order to create complex mortgagebacked securities and derivatives that ended up increasing risks at banks and Financial Companies. We all know how that turned out. We cant deny that betting on cryptocurrencies has made a few people rich, just like some people became fabulously wealthy trading stocks in the 1920s. Or buying and selling derivatives 20 years ago. And we all heard the stories about Mortgage Brokers and houseflippers becomingut millionaires in the 2000s. But for most people, this kind of wild speculation ends in disaster. And the only ones who tend to walk away unscathed are the big guys, its always the big guys, the ones who call it innovation while lining their own pockets. So far, what happens in the crypto markets has stayed in the crypto markets. But stablecoins create a very real link between the real economy and this new fantasy economy. We saw this with dogecoins, a satirical cryptocurrency that was all of a sudden worth billions when a tech billionaire tweeted about it. Think about that. Its understandable that a lot of people are looking for an alternative to our current Financial System. Wall street banks dominate, and they make record profits noo matter whats happening to workers and Small Businesses and the country at large. To a whole lot of people, that seems like a fantasy economy too. But a big tech scheme that makes it easy for hardworking americans to put their money at risk isnt the answer. Stablecoins and crypto markets arent actually an alternative to our Banking System. Theyre a mirror of the samear broken system, with even less accountability, and no rules at all. Today well hear the same arguments from this industry against regulation that weve heard from financial industry t lobbyists so many times before, it harms innovation, the free market will solve all our problems, America Needs to be globally competitive. Of course we do. What makes america the strongest economy in the world isnt wild betting in the financial sector. Its our workers, their talent, their ingenuity, their dedication. Thats what our economy is built on. You cant fake that. But as weve seen so many times before, you can put it all at risk. The rest of the world trusts the u. S. Dollar when we have orderly, sane markets. The real threat to our global competiveness is regulators who ignore clear warning signs. We have reason to be encouraged this time around, though. The Biden Administration is putting strong watchdogs in place at the banking and market regulators. Nge, strong watchdogs in place in the banking regulation, fighting to bring down costs for families, for seniors with perception drugs, for the middle class with the build back better plan, we can put that potential at risk. I will continue to work with the financial watchdogs to ensure that they have the tools they need to protect peoples hardearned money in our economic recovery from another bubble or another crash. Stable coins are an essential component of the cryptocurrency ecosystem, which is itself at the vanguard of the tokenization of assets. Stable coins can speed up payments, especially crossborder transfers. They can reduce costs, including remittances. And they can help combat Money Laundering and terrorist financing. Stable coins can also be programmed and made interoperable with other currencies, creating efficiencies to improve access to Financial Services. Unlike volatile cryptocurrencies, like bitcoin, stable coins do not fluctuate in their dollar price. In todays hearing, we will focus on stable coins, designed to maintain a onetoone value relative to the u. S. Dollar, meaning one stable coin is meant to always equal one dollar. Over the past year, stable coin market has exploded. As one of our witnesses will explain, stable coins are beginning to be used for Small Business payments and international remittances. While traditional payment substance can be extensive and take several days to settle, transferring funds via stable coins is low cost, and narrowly instantaneous. Given that stable coins disrupt the status quo, they have naturally drawn skepticism from incumbent industries and regulars. The president and regulators. The president S Administration issued a report to establish a federal Regulatory Framework for stable coins. In their report, the Treasury Department and others expressed their worries about Consumer Protection and financial ability with stable coins Financial Stability with stable coins. I was encouraged that the report acknowledged there was possibly for clarifying to works that federal agencies have jurisdiction over stable coins. It is a question that rests with the congress. Im open to working with the administration and my democratic colleagues on this front. Whatever congress does, lets be sure that we dont stifle innovation in an evolving Digital Economy or undermine our own countrys competitiveness. Many of our views about how Financial Services are delivered and how investments work are quickly becoming outdated. Im releasing a set of Guiding Principles this morning that i thing should influence our work on a stable coin legislative framework. These principles recognize the stable coins are very important innovations and introduce new capabilities into money that did not previously exist. In addition to the easeofuse and reduced fees associated with their transfer, stable coins can improve the privacy and security of our transactions. They also introduced the concept of money programmability or smart contracts, which allow omitted transactions based on a sequence of verifiable events. In recognition of the potential of these new capabilities, any regulation should be narrowly tailored and designed to do no harm. At the same time, sensible regulatory standards may help to combat against key risks, such as reduction or run risk. Dispensable to a different approach in the root these take a different approach in the report. All stable coin issuers must be insured through its additions. There are three reasons i disagree with that wreck of addition. Stable coin issuers have different Business Models than banks. They do not provide the sims services as banks and do not present the same risks same services as banks and do not present the same risks. Stable coin providers do not engage in taking the deposits and making those in the making loans in the way that banks do. It is not appropriate tailored to the potential risks. Requiring stable quest to become issuers which stifle innovation stable coins to become issuers which stifle innovation. It is unlikely much of this developer can happen within the Banking System because of the onerous regulations which create a difficult environment renovation. Allowing entrepreneurs to innovate with Digital Assets like stable coins will promote greater competition and deliver better results for consumers. The regulation of payments activities should create an issue Playing Field an equal Playing Field. Venmo, apple pay, paypal are already subject to a state by regime and federal regulation. Recognizing different Business Models, there should be at least three options available for stable coin providers, to operate under a conventional bank charter if they two, they couldnt comply with or acquire a special banking for stable kueng providers which would be in a compliance with legislation. They could have in assisting state regime at the federal level. This option ill it would match each stable kueng provider with the Regulatory Framework closest to the model. You should meet certain minimum requirement. For example, they should disclose what assets back stable coin. And they should suggest a periodic audit. This requirement would in sure that they have a stable coin. It may also be appropriate to send minimum reserve requirements. Legislations to stipulate that noninterestbearing stable coins are not necessarily securities and there sure therefore it should not be considered as such. This should protect the confidentiality of individuals using stable coins well allowing customers to up out of sharing personal information. Finally, the antiMoney Laundering and other requirements including the Bank Secrecy Act should really be modernized for all Financial Institutions, subject to them, given the emergence of stable coin and cryptocurrencies. Including artificial intelligence. The emergence of stable coins represents, to me, the latest development in the ongoing development. I stand ready to work on this issue, and i do so any a matter that doesnt discourage innovation or competition, moving for print i look forward to hearing from our witnesses, and i yield my time. Thank you. I will introduce the four witnesses from today. We will hear from Alexis Goldstein on financial policy and open markets. Welcome. So i need is a partner at davis and wardwell. Welcome. And the chief strategist officer at circle and a professor, Hillary Allen, i left out something. The chief Strategy Officer and the professor Hillary Allen who is joining us from her home and office. At the American University in Washington College of law. You have five minutes please. Thank you. Ranking member to me and members of the committee, thank you for inviting me to testify today. As a director of financial policy of the open markets institute, my work focuses on Financial Regulation and Consumer Protections. My degrees in computer science, and i previously worked as a programmer for morgan stanley, building electronic trading systems. As a business analyst, we worked with ogre directive derivative trading. I am also an investor brit i invest in the equity markets, and i invest in the crypto asset markets. These Crypto Exchanges lend, borrow, and trade crypto. I have bridged from one block chained to the other. In doing so, i have seen how stable coins are used across the ecosystem, and i agree with the assessment that stable coins are here for speculation. Stable coins are actively a way station. They deal with speculative trade and avoid losses. Stable coins are also hailed it heralded for their potential. They are not used widely today for goods and services, but they could be. The reality is that today, tail investors across Retail Investors access stable coins by trading them, and not with the corner store. U. S. Retail investors can either Partners Purchase nor redeem the top two stable coins directly from the issuer. Instead, they are reliant on exchanges to trade stable coin for dollar. It is a second step that we are not used to seeing with other kinds of visual payments. You dont need to also set up a Stock Brokerage account in order to send someone money electronic. There are number of ways to earn rewards unstable coins. Many Crypto Lending platforms pay far higher rates for coins on the platform then for locking in nonstable coins. It pays a future of a 1 reward for buying and holding the u. S. Coins by default without any action from the user other than purchasing. It does not offer any rate of return for other stable coins. This is likely because the more the United States withholds for its customer accounts, the more they will make in a sharing agreement that they have. There are claims in the cryptocurrency industry and among some issuers that they are fighting wall street or disrupting wall street. They use the same force arbitration agreement and classaction bands that wall street does. They prevent users from suing in a court of law, should things go wrong. They also claim that government regulation and oversight are not needed because they are publicly available for anyone to read. The moment the platform is hacked, because an attacker has acted, they will find a bug and exploit a bug. They tend to call for Law Enforcement to help chase down the stolen funds. There also promises that stable coins could drive Financial Inclusion outcomes, and that we all agree is prickle. Recent report from the economic form says that stable coins have no benefit for Financial Inclusion with higher barriers as preexisting financial options, including the need for internet and smartphones. I have found this to be true when you stable coins. They begin to add up fast. Especially, when you want to send a stable coin to your friend or to a different wallet off of the exchange. The plight of the cryptocurrency mike it market includes regulation. It is called decentralized finance. Simply, it decentralized finance does not work without stable coins. Help to facilitate trading and access collateral and lending and firing protocols borrowing particles. As of yesterday, eight out of nine of the top liquidity pools had at least one leg in the stable coin. With only a few exceptions, the platforms are not compliant with customer antimonetary anti laundering and terrorism. They are not conducting a simple check to ensure the cryptocurrency address calls to the protocols that are not on the sanctions was. Today, the cryptocurrency market is not entangled. If the wall street and Cryptocurrency Industries have their way, it will be. I think the committees right to Pay Attention to stable coins and crypto markets abroad. Absent your attention, i think there is potential for a crisis, especially in a nonregulated ecosystem. Thank you very much. I look forward to your questions. Thank you miss goldstein. Chairman brown. Ranking members of the committee, thank you for inviting me here today to talk about this complex and interesting topic. I am a partner in the Financial Institution institutions group. This particularly the case for truer stable coins. They are noninterest bearing instruments, designed to maintain a stable value. That is against a reference of a currency. One dollar. Todays coins are used primarily for payments in connection with Cryptocurrency Transactions and decentralized finance that is an application. Stable coin payments could have broader uses. They would complement existing payments such as cash check, credit and debit cards. Also wire transfers. Each of which has benefited benefits and drawbacks. Second, a stable coin begins to find use in a retail payment. We must seek to understand the risks they present. Along with the benefits. Like the innovations money that preceded them, stable coins are squarely presented in the core regulatory concerns of consumers with actions, systemic stability, safety and soundness. Also combating illicit finance. It is been described in the reports to more specific kinds of risk. Such as related to the operation of block chain platforms and risks arriving from regulatory gaps. Third, the regulation of stable coins should address these risks while supporting the potential benefits. A written statement goes into these points in more detail. For now, i will summarize my view of what regulation of stable coin should look like. Stable coin issuers should have restrictions on permissible types of reserve assets to ensure shortterm liquid backing of those reserves. They should have auditing and transparency standards to regulate the public so they can evaluate reserve compositions. There should be restrictions that preclude maturity and liquidity transformations. It would shield reserve assets. We should have obligations to address illicit finance and considerations, and there should be requirements to address operational risks from conducting transfers on blotchy networks. But, requiring stable coin issuers to be issuing a positive institution, that ensures banks, that suggests in that report that it is not necessary. Unless adjustments are made, it will not be workable. For fdic insurance, it is not necessary to address risk where a stable coin issuer is properly regulated. Reserves art shortterm liquid assets, and they have at least 100 of the power value of the stable coin. Second, things are subject to leverage ratios and riskbased cap ratios. But they assume, relatively easily, a liquid risk to your assets then cash or cash equivalents. Unless congress recalibrate these ratios, the stable coin Business Model would be uneconomic. Congress should consider an optional header federal charter for stable issuers. At this time, stable coin issuers and digital wallet providers are largely regulated by the states. That is under money transmission regulations to state Trust Company authorities. There is an expanded federal law. It is appropriate and useful. I would close by thinking the Committee First focus on these important issues. While i do not believe that stable coin issuers should be required to be insured banks, i strongly support the commonsense regulation for stable coins in a way that takes into account the risks and benefits. I am optimistic that there is much Common Ground that can pay the fourway best pave the way to safeguard consumers and the Banking System and the broader economy. That is what continuing i will be happy to answer any questions. Welcome. Members of the committee. Thank you for the opportunity to share my testimony with you today. My name is dante and i am the head of global policy. I am a leading Digital Financial service firm worker in the usdc. A dollar Digital Currency extends the u. S. Dollar in a competitive global county. Having completed my term on the national visor counsel, i will be no stranger to disaster displacement and hardship. Is this disaster and others have shown, with the movement of Financial Aid and disaster relief, friction stands in the way. There is a great depression, great deleveraging, and the onset of the covid19 pandemic. It is notion short of a great depression. It is nothing short of political, business, and continuity was laid bare. There is access to the internet and other public goods that was unequal. How we engage with money and payment in the digital form was clearly an area of prepandemic vulnerability in the United States and around the world. The advent of stable coins is what we refer to as dollar Digital Currency, such as usdc. It is an important innovation and how we send, spend, and save our money. To define the coin, money itself is not created equal. It is tantamount to the moment we converted our compact discs into mp3. The music is still yours, but now you enjoy the programmability and control of a form factor. It works they were the planet. It is designed to reference the equitablys own underlying asset. Circulation, the most successful of which all reference the dollar. With the economic gain of buyers and spenders rewards that plagued early cryptocurrencies. Usdc is now a dollar Digital Currency standing at more than 40 billion in circulation and community leak communicatively supporting transactions print it enhances Financial Inclusion, responsible innovation, and parity. Critically, the dollar is backing the usdc, which strictly caps the duration of treasury of 90 days or less. It is all held in the care custody and control of the u. S. Regulated Financial Institutions. Indeed, as this internet native financial infrastructure continues to grow, we aim to do our part with payments and moneys that are more inclusive in the past. Our recently announced initiative has four core components, each of which are close to home for me, having grown up in poverty and being the first generation in high school graduate. These include allocating dollar reserves to minority depository institutions and Community Banks across the country. We hope this will include billions of dollars over time, strengthening the Balance Sheets of banks and thereby strengthen their committees. Embarking on Digital Financial literacy initiatives with historically black universities, and other partners supporting the development of essential learning and hands approaches to entrepreneur. It is one of the leading nation equity crowdfunding businesses, targeting campaigns for women and minority auditors across the country. Finally, assisting umana terry d interventions humanitarian interventions. It list corruption resistant statement lease. Nothing is worth doing alone. Our hope is to catalyze the common coalitions on these initiatives which are deeply connective connected to global prosperity with the restrictions of financial value. While some argued that the United States may use lose that rates if they failed to issue a central bank Digital Currency, i argue that we are winning this race because the sum of premarket activity taking place within the perimeter. Digital currencies are in Financial Services. Some of these activities are advancing broad economic competitiveness, and National Security interests. Thank you sharon brown and Ranking Member to me to allow me to speak. I hate look for to addressing your questions. Sen. Brown thank you very much. We will now hear from professor Hilary J Allen from washington. She is joining us from a remote location. Professor, welcome. Thank you, chairman brown. Ranking member to me and members of the committee. Thank you for inviting me. I am a professor at the American University of Washington College of law and the author of the book the impact of financials debility. Financial stability regulation is the focus my remarks today relating to crypto, particularly stable coins and financial currencies. I would like to point out that while the focus of my testimony, there is a threat to Monetary Policy as well, and i would had be happy to take questions on that point as well. Crypto creates jobs and promote special inclusion, but the financial crisis destroyed jobs and it is disproportionately affecting the most honorable in the community. We should be aware of the fragility of the effect on the Financial System. There are number of new fragilitys, including the ability with any programming ability to create Financial Assets out of thin air and bigger bubbles with bigger bus. The distribute to distribute if ledgers have a governance mechanism with makes problems go by extreme challengingly. Fragility it also arrives in computer programs that operate with ledgers on a smart contract. They execute automatically. Even when the parties agree with interest. Other fragility includes the possibility of stable coins and losing confidence in the ability to attain stable coins as a currency at the expense of race. It is an important point to load note about this. Although it is hard to maintain concrete data, it is almost exclusively being used in apps rather than for every day. These decentralized finance apps are not particularly decentralized grid centralize governance and complicated ownerships proliferate in a deep centralized finance ecosystem. It relies upon technology, which ive already discussed and want to use it for. Our established Financial System has more functions with channeling capital and our economy can grow. That is why we have taken the financial industry with industry insurance we ensure that it can continue floating credit to the economy. It becomes problematic in Financial Services when they are being bailed off by the real economy to make it profit for industry leaders. This is already an issue for the established Financial System. Decentralized finance has the potential to take it to the extreme. Centralize finance has been described as a casino, and that is why it is critical that they not rake into things that the government feels compelled to bail out. A recent report from the bank of settlements concluded that given the selfcontained nature, with potential for d5 driven disruptions in the Financial System and the real economy seems limited for now. Allowing the information of d fight in traditional systems could change that. Congress already regulates and prohibits depository institutions and their ability to participate in d5. Ensuring the issuers of stable coin to d5 would also encourage growth in a systemic way. I disagree with the president s recommendation that congress adopt legislation regulating a stable coin and that dispositive or a depository sedition. A stable coin can be dealt with in other ways. It will benefit stable coins and the lack of regulation with authorization of stable coins if they can demonstrate a purpose outside of the decent place by its ecosystem, and if they do not prove any threat to Financial Institution or Monetary Policy. It would create some barriers to innovation, to be sure, but not all financial innovation was created equal. A recent Economic Forum concluded that stable coin is deployed with benefits for Financial Inclusion beyond those offered by preexisting options. Simple Payment Innovation could make a better and less risky way to promote Financial Inclusion than a system built on radical stable coins that it already funds with a ledger of structure that entails environmental cost to operate. An alternative approach would be to use it as they are use current leap currently. A stable coin prohibits deposit taking institutions from excepting any deposits from stable coin issuers. Or from issuing their own stable coins. Second, there will be stock monitoring the stable coin changes in the economy. Third, use the designation to designate a stable coin as important, and use antitrust regulation as well as the stock designation power to prevent terms like meta and facebook from watching a stable going. I look forward to hearing your question for it thank you. I will get begin with this goal goldstein. Meaning no disrespect to the four of you, but we will be moving in and out and keeping things going with asking questions. Miss goldstein, please be brief on these because i have a lot of material to cover. Stable coins are mostly used for speculative bedding. Some crypto advocates argue they have the potential to make the system faster and more for student more efficient. Are they a way to settle payments with the traditional finance system . Ms. Goldstein thank you for the question. I think for that to be true you need four things. You need low fees, predictability, we need to be able to exchange them for goods and services. Needs to be fast. I dont think stable coins meet all of those needed objectives. As someone plays rome sending them, both personally and in my work, it also makes Western Union look cheap when you wrap up all of the things you need in order to send different ones to one person or another. Especially with a theory, and block chain. It could be high, and as you know, people with low incomes cannot afford the practices, and transferring at thats assets can be full of lots of surprises and high fees. Sen. Brown thank you. You agree with her . That stable coins do not show promise as a Payment System . I think that is true. I also think about the distributive ledger. It is not something you can go to. If there is a problem on a decentralized ledger with a lot of notes and governance, debts. Sen. Brown do they hold promise for faster and more inclusive payments, do you think it would make sense to bring them into a traditional finance . Ms. Allen i think there are concerns about the traditional finance. Primarily because of their relationship with decentralized finance. Theres also the issue of their own risks. If they were brought to be used as payments and procured into the proper Financial System, we would have to be very careful about systemic rates that plant play an important role. Sen. Brown thank you. Last weeks hearing in the house your ceo agreed that stable coins are mostly used for trading in speculation, but your company is seeking a bank charter based on what you call usdc. Just to be clear, you have an interesting name to be sure. United States Dollar coin. Being a payment product. If it becomes a payment, would you limited to internet payments and platforms, or would you allow usdc to be used to facilitate cryptocurrency speculation . Thank you for the question. The advent of a Capital Market and always under economy, built around innovations on the block chain, it is important. It is also critical that the dollar fundamentally when with what it reasons. Circle counterparts to accompany our other institutions and companies. We dont face the Retail Market as a retail Payment System. A lot of what that is is ultimately payments, crypto Capital Market training, and other activities. We are also seeing, and this is critical, like to highlight this in the hearing, we see an increasingly becoming a mechanism of payment and settlement, including among traditional firms. Credit cards and others are using usdc as a settlement option for the networks. And makes the medium of exchange quite strong. Sen. Brown if you are inside, it becomes a bank. It would still be used for cryptocurrency speculation. Is that a yes or no . Mr. Disparte the usdc has expectation of a profit. A dollar goes in and a dollar come separate we have maintained price parity to the dollar. With cash and duration tragedy treasury. At least within the Banking System. Sen. Brown let me ask a different way. If it was a traditional finance company, it would be illegal for you to sell metal coins. The u. S. Dollar coin on them. Correct . Mr. Disparte i think the question ultimately. Sen. Brown its a simple question. If you are simple finance company, you believe you could sell metal going since the u. S. Dollar coin . Mr. Disparte no. Sen. Brown thats the answer. Thats the law. Do think the name of your stable coin could mislead users to be believed as backed by the u. S. Government . Throughout the usdc, you may have wanted that at the beginning, and im sure you marketed it that way to some who are less sophisticated than we pretend to be appear. Do you think that is misleading in any way to call it u. S. Dollar coin . Mr. Disparte no. The stable coin innovation that we support is regulated consistently across the country. It is according to electronic money and electronic money transfers, and statutes of payments. We are on a level Playing Field with Companies Like paypal and other venture Payment Companies such as the niceties. On the United States. Sen. Brown let me ask another question. The fed moves forward. Are you going to let them call it a u. S. Dollar coin or u. S. Dollar . Theres some irony. I dont know if you have a copyright or a patent on u. S. Dollar coin, but i assume that if there is, we do is central bank Digital Currency, they may have rights regardless of the Supreme Court or any Financial Regulation of the night States Dollar coin. Just putting that out there. Mr. Disparte indeed, sovereign issued currencies have three currency prefixes, so i am certain that if a centralbank digital cardi was issued by the fed, they would enjoy total autonomy over the name choice. I think they would enjoy this experience of stable coins that all reference the dollar is important prototypes for what may be an opportunity which we could upgrade the infrastructure to support Digital Currency as well. Sen. Brown you are a good representative for usdc. Mr. Disparte thank you. Thank you. The sum of our Witnesses Today seem to think that stable coin is unlikely to ever start serve any purpose other than serving crypto speculation. The cost of transactions in various things seems to be that technology is moving very rapidly in a direction of facilitating and moving the cost of throughput. Could you tell us what else is actually happening already with stable coins outside of the facilitation of crypto trading, and what do you think is imminent . Mr. Disparte thank you. The lens of these types of innovations within the traditional payment and baking system, i think it is exactly where we are right now. We can acknowledge the original case, with the support of crypto and Capital Markets and a host of activities in the training to me. We are seeing, however, integration of stable coin based on payments across thirdgeneration block chains that are increasingly better, cheaper, faster than the analog alternatives for how we move money. They increasingly also benefit from the immutable permanent lecturing of Financial Transactions which have enormous gains in caching and financial integrity. Sen. Toomey we have limited time. Are you saying it is fair to say that there are sophisticated Financial Institutions that are increasingly pursuing the use of these platforms for an alternative mechanism for settling payments . Mr. Disparte indeed. To name a few, just to name a few, the visa network has enabled usdc as a native settlement option across its network of 70 million merchants. Traditional companies in the remittance domain, such as money grab, they have announced a partnership with enabling usdc on a stellar block chain for remittances and for cash in and cash out across the world. Sen. Toomey visa probably knows something about settling payments. It seems to be suggested that one alternative would be to ban stable coins. If congress banned stable coins, do you think that maybe people in other countries would develop stable coins and then if anyone had access to the computer, and the unit, would they be able to access those coins . Would that be very unlikely to actually work and prohibiting the use of stable coins . Mr. Disparte no question. It borrows from Early Experiences with the advent of the internet in which people creating websites once upon a time considered a precluded activity or neck to be that might warrant authorization as value began to emerge. It is profoundly in the interest and Public Interest that we have options for how we move in the economy. Our financial needs do not take bank holidays, and our money should not. Let me move on. Youve made it clear that you think there should be a Regulatory Regime starting stable coins, but you point out that requiring them to be insured depository institutions doesnt make a lot of sense because the fundamental purpose is different from that of insured depository institutions. Could you elaborate on that a little bit. I have one last question. Ms. Massari im happy for the question. It is a fundamental idea. It is a Business Model in the risks raised by what i think is a well regulated stable coin. Investments with those deposit proceeds so that activity, maturity transformation and liquidity transformation drives the run rest and is the core of what Traditional Bank regulation is designedto address. This includes regulations designed to address those core bankingactivities. So in my view imposing regulations for insured depository institutions on stable coins hold 100 percent shortterm liquid reserves in line for payments not lending is the long approach as congress hopefully wrestles with the question of what should an appropriate regimen Regulatory Regime look like what are some of the principles you think we should keep in mind . I would argue do no harm and continue to allow these innovations to thrive. As the state money transitions have been the starting point as Companies Like paypal and many of the major Payment Companies can exist and safely transmit millions of dollars of transactions on their platforms, on the statutes i think this is a powerful starting point. Hethe concept of having bank like risks is similarly important but it should be risk adjusted and should be based on the type of activity. Technology neutrality and the type of activity should be what drives our policy. Let me just say miss goldstein im going to submit to you a written question because we are out of time but i think that the examples that you provide in the case where Western Union provides a lowercost transfer is an unusually expensive transaction in that people who were interested in such a transaction and were concerned about lowering the cost could easily construct a transaction in alternative orways that would be much lower cost. But i will submit a question in writing to clarify that and with that iyield back. Senator reid is recognized from rhodeislands. Thank you mister chairman. Professor alan, you invited us to ask you about in Monetary Policy aspects of stablecoin. We understand a critical part of our economy is the ability of the Federal Reserve to control the money supply. Could you comment and whatever detail is appropriate about the impact of these stablecoins on Monetary Policy . Thank you for the question senator. If youre dealing with a situation where theres high inflation or deflation, the central bank maintains the ability to match the amount of money in the system to the economy. Thats how Monetary Policy is carried out s. If however the same central bank loses control of the supply they lose their ability to put their hands on those levers. This is something Central Banks are concerned about. That is the impetus for interest in central bank Digital Currency. Interestingly the same Central Banks worried are also worried about the Financial Stability issues that come with the introduction of a central bank Digital Currency and we mentioned the privacy issue. Its an interesting question that they feel the need to compete with stablecoin. Perhaps more intervention in this policy is justified. One other aspect is that this is a novel or at least a fairly recent phenomenon and it requires a great deal of floor analysis and projecting as to what we should do. And after the crisis in 2008, 2009 we created theoffice of Financial Research. Do you see where the office of Financial Research in terms of analyzing structuring and making recommendations to congress with respect to the stable coins. Thank you senator. I do see a role for the office of Financial Research here. Office of Financial Research is created to respond to the gaps that we saw over the financial crisis of 2008. As finances become more technologically informed as finance faces risks from Climate Change and things like that are now leaning into disciplinary approach to Financial Regulation that includes computer scientists, data scientists, climate scientists. Where we are is underutilized and we would be albuilt up with that interdisciplinary expertise that would give a more informed foundation two in engage on issues of stablecoin among other things. I concur. Miss goldstein, there are data gaps in the crypto currency markets. Could you highlight what you think are the most significant data gaps that we need to have . Thank you for the question senator reid. Unlike the staff market where we can rely on things like the consolidated auto trailer we know all the quotes go through Leverage Exchange will be reported back to the regulator at the end of the day. Were at the mercy of what the crypto currency industry wants to sell support so we may get information about particular prices or traded but we may not get quote information. You will see arbitrage opportunities prop up where the price of bitcoins on one exchange may different be different than it is on another exchange and i dont know regulators have all the data to understand why that might be. Theres a real sort of i think potential for congress to look at is there a way to make sure we do have standardized data reporting in a way that we make sure all the different exchanges are giving regulators all the information they need. Miss goldstein, i presume that you would have some about the existing transparency reporting and Disclosure Requirements that are imposedon these entities, is that correct . Thats correct. Senator, chairman brown asked me to recognize senator lowndes at the conclusion of my questions. Senator you arerecognized. Thank you mister chairman. First of all, thank you to all of you for appearing before us today. As a consumer, i look at these and i say theres got to be an opportunity here. Theres a reason why we have millions of people participating in these transactions. Using the products and services that you provide. At the same time, it seems to me that we have a regulatory responsibility to make sure that the illicit uses of these types of services are limited. We are challenged because in the United States as we regulate , certain organizations may very well move outside of the United States and move elsewhere. If im a consumer why would i want and ill direct this first of all to mister just partake, if im a consumer why would i want to use your service as opposed to that of a visa using dollars as the currency. Thank you for the question. Part of what circles innovations are providing bearing in mind that our direct customer are typically businesses and we dont work with retail consumers but nonetheless the infrastructure that were supporting today is enjoyed by more than 20 Million People in the United States and 100 Million People worldwide for the price of access for the cost of access to Things International remittances, payments, money transfers both domestic and foreign and candidly access to the Capital Markets have been prohibited. On the one hand if to be banked hinges on brickandmortar infrastructure there will be hundreds of millions of people around the world will consistently be left in the margins so let me cut to the chase. What youre suggesting is that there is an economic benefit to someone because the cost of actually executing the transaction are less im going to say on average for yours and what would be for someone to the traditional brickandmortar process or is that the marketing rothats being done . Thats part of what the ultimate opportunity is in the remittances cases of which we can describe. The number theres Companies Like apollo which is a woman founded startup partnered with visa to use remittances. The proposition ultimately is that sending Digital Currency payments are no different than sending data. Object to Financial Crime compliance and subject to the appropriate guardrails around protecting Financial Systems but nonetheless the Value Proposition is afundamentally lower costtransfer value on the internet. Miss goldstein, im curious. You indicated that the cost per transaction was probably greater in this particular case since your discrepancy or between your opening in on it. And mister disparte can you share whyits more expensive in this particular case . Sure senator. It has to do with whether or not you are going to use the usdc coins. To purchase other crypto. Are you going to keep it in this closed ecosystem and just use it to buy something else. My point is if youre using it for remittances or sending it to another country chances are you cant go to a local Grocery Store and use usdc to buy milk. Youre going to need to convert it to your local currency. Theres also a fee when say i want to send something overseas. I need to send it to somebody else. To do that the usdc coin runs on lots of blockades but the predominant is an erc20 standard. It can cost 10, it can cost 20 and ive seen it as high as 40 to send it from my wallet to somebody elses. Once it gets to their wallet n if theyre not going to use usdc they need to convert it to the local currency and that involves putting in on an Exchange Traded to the local currency and get into their banks so they can pay the amount at the Grocery Store and that may include a fee. It has to do with you need to bring it back to fiat or can you keep it within this closed crypto ecosystem. Thats where you see the disparity. Mister disparte im regoing to give you an opportunity to respond. Thank you for the opportunity. The quick version is only a block chains are a little bit akin to dialup internet and the argument to ban the stablecoin innovation because the current experience on blockchain ignores the innovation isnt standing still. There are Third Generation blockchain are approaching transactions attempt to major credit cardnetworks and paying on the s dollar for value transfer my time is expired, thank you. Thank you senator rounds he recognize senator daines. Thank you. Stablecoin policy is an area where there should be and hopefully will be broad bipartisan agreement as well as compromise. Stablecoins are distinct from crypto currency and there is a central entity that issues and is responsible for any individual token. Personally, i believe we should pursue a lighter touch approach to regulating n. The innovation taking place with crypto currencies and with stablecoin but i do believe a Bipartisan Legislation framework that i hope this committee would agree on is both possible course stablecoin and frankly ra necessary. I urge my colleagues to avoid hyper partisan solutions in this and instead seek consensus on something thats truly bipartisan will provide certainty needed for the private industries to grow as well as prosper. This i believe will help provide the best pathway forward for this technology to grow and in a way that will benefit montanans, the American People as well as the global Financial System. Mister stablecoin, can you describe the current Regulatory Environment facing stablecoin users in this circle . Thank you for the question and we agree with the spirit of appealing to a nonpartisan approach to how to regulate these innovations inside the United States. Arguably when i look at the experience of a company like circle we are licensed from sea to shining sea under state money transmission and answerable through the examination process to the Bank Supervisors and state money transmission supervisors across thecountry. Weve also helped contribute to creating a model law to try to make a more uniform operating environment. Were also a registered money Transmission Company and have worked over the years with tLaw Enforcement and other actors on protecting the integrity of theFinancial System which is an important pillar. When you think about this innovation outside of the United States however and what it means to compete on a Global Environment this is where i think the us faces a gap. The bank for International Settlements the Financial Stability board state regulators that ive represented the federal and National Regulators that are thats where the us potentially faces a competitiveness gap but broadly speaking i think our current regimes or money transmission provide for a degree of sufficiency around the use of an electronic form of payment and a medium of exchangestablecoin. You touched on the issue certainly on the Global Situation and that really leads me to the question, can you describe how usd pegged stable coin could advance the role of the us dollar. From an International Viewpoint and how that might help preserve the dollar status as the worlds foremost reserve treasury. Thank you for the question senator. To me this is a very interesting line of thinking about how stablecoin could affect Monetary Policy. To me itsnot clear that they would be harmful to Monetary Policy when regulated. In the manner that i described in my testimony. Back the hundred percent at least 100 percent size, Bank Deposits, u. S. Treasury. As some of my fellow witnesses and spoke about, these stable coins can be available for witness transfers, for use outside the United States just as other dollar types accounts and payments to my mind just as those instruments help to bolster the standing of the us dollars of the world currency. Theargument should be the same for stable coins. What do you think the future of stable coin regulation would be if congress doesnt act . In a bipartisan fashion to foster safe and stable growth. Great question senator, i do. My own view is it would be useful for congress to think al about a federal charter and optional federal charter for stable coin issuers. I think this is a really important aspect ofensuring appropriate division at the federal level. Its to achieve all of the policy goals that i think we care about. In a nonpartisan bipartisan way. To my mind, the state Regulatory Regime that exists today has gone a long way to serve the interests of consumers in different e states. I think the federal framework would provideadditional clarity. Speaking of benefits back to mister disparte. What are the ways in which stablecoins lower costs within an increase access to Financial Systems . Thank you for the question senator. I get back to the question that if the bank hinges on traditional brickandmortar infrastructure many people will be under bank and we saw that happening with theadvent of the covid19 pandemic and inability to move money at scale was able mobility for the money and the world. Stablecoin has a trusted medium of exchange that are dollar referenced on the internet and that allows for lowercost transactions and a whole host of other Financial Services to blossom where the fundamental trust in the dollar is protected and preserved. Chairman brown. Putting quickly the senior senator from montana is recognized. I want to thank the wrecking Ranking Member for having this hearing and i want to thank everybody for testifying. So ive heard from a lot of folks in the crypto currency space there descriptions of their sproduct reminds me of something. And its not necessarily a good thing. It reminds me of the synthetic products that wesaw leading up to the financial crisis of only. Because its not in all cases but in some there isnt anything real behind them. I know stablecoin is backed by real assets but that doesnt mean they cant be manipulated and it doesnt mean when you combine all these products together set there is an opportunity for some foul play, lets put it that way. For you professor alan, do you think thats a fair comparison but i just made between crypto currency and emphatic Financial Instruments . I do, thank you for that analogy. When we heard about the synthetic product in the lead up to the financial crisis of 2008 we heard things like these will promote homeownership and so you have to be wary i think of claims to Financial Inclusion because sometimes theyre overblown and you particularly have to be wary of them in circumstances where the means to provide that goal is unnecessary complex. Complexity is a problem for Financial Stability. You dont understand why things are the way they are, if theyre too complicated that creates capacity and then panic. When we have aproduct like the stablecoin thats being proposed to solve Financial Inclusion we have to ask geourselves why did it need to be so complex . Why did it need to run on a decentralized government mechanism . Why do we need the environmental cost of that process . Are there not innovations d that are simpler that could achieve the goal in a similar way . Is goldstein you have anything youd like to add. I would add that i agree. Re i work on wall street before during and after the financial crisis and i think there are comparisons to the products you raise. The secondary market where stablecoins participate you find particular reminds me of overthecounter derivative markets but that is very much retail and institutions. Professor alan i want to go back to you for asecond. Yi believe you are the one that stated if you have albums theres no one to go to, was the correct . That was in the opening statement. Thats correct. Ive got to ask you, if i had a problem, if i was using these products, who would i go to . Or am i just out in the cold . Thank you senator. I think it depends. If in fact the table coin as an issue behind that manages the reserve and outheres a problem you could go to that stable coin issuer but then that highlights these things are not as decentralized as anticipated where these intermediaries come into the system and those a intermediaries have profit motives like any established financial intermediary so the essential democratizing finance system falls apart. If were talking about a stablecoin operated in a truly decentralized fashion where its operating on a ledger where you need multiple roads to lead to any change, then that is something that could hold incredible problems. Who would you go to, which of those people would you be able to reach out to if you needed a transaction undone for example because there was a mistake made. Thank you. This goldstein you talk about these four objectives. One more season what were the other three . You need to be predictable and exchange it for goods and services and you need i forget. You said it doesnt mean fees because these are high. Doesnt meet the other three . I think when you stay within the crypto currency ecosystem it doesmeet the speed requirement. I dont think it needs needs to predict ability requirements and i dont think it needs the exchanging it for goods and Services Requirements broadly. Quickly because my time is slim what these are talking about compared to what we see in the industry today . It depends on the exchange. It depends if youre moving back to fiat but lets say you start at fiat and move into stable coin. By buying one on exchange because as mister despite they said they dont serve retail customers. Youve got to goto an exchange. You send it to someone else boand bring it back to fiat. It can be as high as 80 or as low as six dollars. Western union is about four or five. What kind of amount, thats a flat fee regardless of how much money. Its an population of fees because you have to take several steps. Thank you all. Thank you senator chester. Senator warner from virginia is on from his office. I appreciate you holding this hearing. I am very concerned. I agree with the Ranking Member theres a lot of innovation going on and we shouldnt get rid of that. I do and im very concerned from the standpoint that a lot of this is being used for illegal and illicit purposes. We just had a major break in to our state legislative system in virginia everything is frozen with ran somewhere. A threat has been issued and my fear is it would be paid off in some level of bitcoins potentially using a stable coin as i do believe transferred back to a fiat currency but one let me ask the question that and ill start with Mister Goldstein that id probably take everybody. I think i understand somewhat definitively the notion of creating a different currency. Goal has no inherent value so maybe we as a society take bitcoins or some other entity to have value. It has some logic to me but the idea of a privatesector stable coin where you have a literallydollar for dollar or totally liquid security and no leverage at all. How do you make any money off this . I get it if you are facebook and youve got a whole Network Effect and you become the default Crypto Wallet and that means youre collecting the horn lot more information but lets start with you. I get it now if they are making all these things but if mister disparte is right and theyre going to ultimately get down to a ti frictionless transaction , how do you make enough money just also float to have this kind of stablecoin become a viable Financial Investment . I think thats a good question. Thats why you see for example on some of the sec filings that said they want to move into circle be an offer Additional Services that allow customers to access the five problems like compound with apis that circle their Investor Presentation about building. I also think they have a revenue share agreement with this coin base. Perhaps there making some profits from coin base. I would direct the question to mister disparte that i would imagine if its just treasuries and its just cash i understand what i see in thesec investment trails that want to provide other services. Im going to get to you but first, help me out here. Ive got painful to a lot of fees. If you literally got no leverage at all and you bought a 141 exchange and youre going to bring down the transaction cost and you dont have a Network Effect the way facebook worksfrom whatever theyre calling it this week , how do you make any money. Its a great question. And of course i cant speak about any of my clients for particular projects but i think your observation is right. If we appropriately regulate stable coin issuers, they should only be holding shortterm liquid assets to back there stable coin obligations. That remains their main source of revenue for them and then they can provide Payment Services and other services adjacent to the issuance of this stable coin. The same kinds of Payments Services that i think we see today whether its remittances or peertopeer transfers or other kinds of services and perhaps charge fees for their services. But again to mister disparte, these other Services Like paypal literally has a dollar backing, every dollar that goes through the paypal pranced transaction system. I want to hear mister disparte. How are you going to getmake any money if you get to this frictionless system . For the general matter as a company we are in the process of going public so theres a lot of customer and market spacing disclosure around the businesses revenue model but can to a paypal, it holds an ominous account that is held in the interest of customers to secure transactions so we have a similar Business Model and a very similar us licensing platform. And our current reserve structure is cash and shortterm treasuries of 90 days or less so theres a nominal degree of Interest Rate sensitivity on that reserve compensation thats part of our revenue model. Theres also a revenue model applied in terms of the minimus transaction fees for using circle accounts and other services. Time drying out, i again stable coin is backed by the fact that youve got a dollar for dollar. Ms. Ellen my time is up if you want to add. Ill say briefly no ones going to offer their system as a way for them to make money. For trying to promote Financial Inclusion we wanted to be a winwin. Theres reason to be skeptical than the actual moneymaking nature of the innovation of employee disclosed. Thank you senator senator warren from massachusetts is recognized d for five minutes. So unlike other crypto currencies like bitcoins, stablecoin like usdc are supposedly pegged to the dollar. T the reason for this is to reassure people that stablecoins are as stable as using the dollars you have in your wallet or in your Checking Account. A stablecoin dollar in other words will supposedly be worth a real dollar. That would make it a lot easier and a lot safer to trade among different tokens, to put up collateral for a network pay for a cup of coffee a local bodega but i want to examine whether or not the stablecoin talk matches the stablecoin reality. Ms. Goldstein, lets say i owed 10 worth of tether or usdc. If i want to trade my 10 worth of these tokens and i guarantee to get 10 back . Know senator, you are dependent on the exchange where you are trading in because as a customer i cannot go to circle and say redeem my usdc. No usdc customer can trade tether. Sometimes its a little above the dollar, sometimes a little below. And we also dont really know necessarily what stacking all these stablecoins. I want to get into that. I want to underscore this point that if tethers tokens were actually backed one to one it would be one of the 50 largest banks in the country. But we know that it is not. Thats because according to tethers on reports, only about 10 percent of the assets backing stable coin are real dollars in the bank. 90 percent is something else. Not real dollars. And if that worries you heres a little more news. The report that 10 percent of tethers stable coins are backed up by dollars is not actually verified by a comprehensive audited Financial Statement or verified by any government regulator. So professor alan, let me ask you. Lets say im not the only r one who wants to redeem my 10 worth of tether or usdc for dollars and maybe theres bad news in the market and people rushed to cash in their stablecoins. What would a run on the market look like . Could it endanger our ia Financial System . Thank you for that question senator. A number of witnesses have said stablecoin dont engage in Security Transformation or suffer the same fragility as Bank Deposits and thats probably true to some degree but a run on stablecoin would like look like the ones weve seen on money market mutual funds in 2020 and could share dynamics with the foreignexchange crisis like the mexican peso crisis so if holders lose confidence in either the ability of stablecoin or the assets backing it to maintain its stable value they could seek to redeem or exchange their stablecoin mass and if they have direct reduction rights they could liquidate through roof reserve of assets so right now that wouldnt have systemic consequences. If you speculate youre not going to expect stability so runs will be less likely but if iran did occur the impact would be felt in the ecosystem and thats why its critical that we not provide this Government Support to the ecosystem. Let me go there. We know that stablecoin are not always stable. In fact its worse than that. In troubled Economic Times people are most likely to cash out of risky Financial Products and move into real dollars. Stablecoins will take a nosedive precisely when people most need stability and that run on the back mentality could ultimately crash our whole economy. But theres another piece of the risk here and you headed in that direction professor alan. It is the most dangerous part of the crypto world. This is orwhere the regulation is effectively absent and no surprise its where the scammers and cheats and swindlers mixed among parttime investors and first time crypto traders. In d5 someone cant even tell if theyre dealing with a terrorist. Stablecoin provide the lifeblood of the defi ecosystem. People need to trade between different points to trade derivatives, to lend and borrow money at all outside the regulated Banking Systems. Without stable coins, defi comes to a halt so does defi threaten our Financial Stability and can defi continue to growwithout stablecoins . I dont think defi can continue to grow without stablecoin. Right now defi is contained to the point where it wont impact Financial Stability but if it grows theres a real threat there if it becomes intertwined with our traditional financial interest in pursuing this on both the crypto side so i think its critical that stable coins not be allowed to share that. This is risk to traders, risk to our economythe time to act is before it all blows up. Stablecoin have no regulators, no independent auditors, no guarantors, nothing and they are propping up one of the shadiest parts of the crypto world. The place where consumers are least affected from getting scammed. Our regulators need to get serious about clamping down on these risks before its too late. You mister chairman. Senator smith from minnesota is recognized. Thank you chair around and thank you to ourpanelists. I want to ask about this. If businesses transition to cashless models some businesses could adopt stablecoin or even crypto as the only method for payments. And im trying to figure out what impact this could have t on people, especially people of color who are so often left out of the Financial System. According to report approximately 7. 1 million households are unbacked, that was in 2019 so as we moved to a cashless economy happens to people who are low income or homeless or undocumented and how do they pay for things that they would need in a stablecoin world . Does stablecoin give them more freedom and access or does it become another barrier . Ms. Goldstein and professor alan could you help me answer this question . Advocates for stablecoin u argue they provide access for Small Businesses and unbacked people. What do you think about that argument and how does stable coin work for someone who doesnt have a checking or stable Checking Account . If i may give professor alan chance to respond because stablecoin are widely accepted for goods and services you need a bank and not only do you need a bank you need an account at a Crypto Currency Exchange in order to buy stablecoins in the first place at least the top two ones. This is why we saw the world Economic Forum say theres not many benefits to stablecoin because it using the rails of the existing Banking System. So until and if i think its a big if we see mass adoption of stablecoin as a way to accept things at the Grocery Store or to buy your groceries, i dont really see that as healthy for the unbanked because you need a Crypto Currency Exchange. Professor alan. I agree with ms. Goldsteins comment. I want to add something more though which is Financial Literacy is already a huge problem for a lot of people. We expect a lot of consumers in terms of their abilities to read complex financial documents thand understand them. With the move to crypto related Financial Services where asking them to understandcomputer code because disclosures dont always match the computer code so investors in these areas tendto go to the code themselves. That is just entirely unreasonable to expect people to be able to set up the risks on their own by looking at the code. And its difficult enough, extremely difficult for anybody to understand so i agree with you. Let me ask you another question about e this. We need to make sure that workers can rely on their pensions, the pensions they have earned. This is something chair brown and i have passed on since i first came to the senate. As stable coins become more prominent in the Financial System it seems like its worth looking at what this etcould mean for Retirement Plan assets and figuring out whether its a good idea for them to be offered as investments off options for 401 k plans. Professor alan, let me stay with you. For workers or teachers thinking about their retirement accounts or pensions what do you think is the right roll or is there a rule for stablecoins in those plans . I dont think there is a role for them there. I appreciate that people are going through a hard time right now. The search for a yield in this environment is very real pressure but i feel its very dangerous for people to gravitate towards highly volatile assets in that search for yield and particularly when ngwere talking about longterm investments like retirement thats agent recipe for disaster. Would you like to comment on that . Out and i agree with professor alan. I dont know that theres a Retirement Investor that once the volatility and insolvency risk of bitcoins that gives you very little yield if any at all. We know that the stablecoin market is worth about 130 billion and a lot of this growth has happened really fast in the last couple of years and i dont think that regulators have kept up with this transition. The President Working Group on Financial Markets released a report on stable coins as a suggestion for congress as well as banking regulatory agencies on recommendation for what we should think about as we regulate stable coin. I have a couple seconds left but what ms. Goldstein and ill stay with you. What do you think we should be considering aspolicymakers as we think about a Regulatory Framework for stable coins . We need to think about the secondary market and how stable coins rkmake sure there isnt a gap between the protections that you receive as an investor in the equity markets and protections you may receive as an investor in the crypto asset markets whether its execution or making sure the trades are manipulated or being spooked. I think we need to make sure we are narrowing the gap as much as possible so that we can all enjoy the protections where used to seeing in the equity market. I think i know im out of time so i will yield back. Senator sinema is recognized from her office i believe she is still getting on. She may be on the floor voting but i wouldlike to hold for a moment and i will ask one question. Ms. Goldstein, is it true that the crypto currency speculation on decentralized finance platforms wouldnt work without stablecoins . I think thats right or at least it would be a lot smaller. That a company like circle create a stablecoin that could be used for Electronic Payments but can be used the gamble and crypto currencies like dogecoins . Yes, they absolutely could do that. Professor alan what are the risks of stablecoin to be used as a stable system and as a tool to allow gambling in defi markets . It could be used as a Payment System and i think the biggest stability risk is if thats offered by tech Companies Like meta, facebook or amazon because then you have potential to scale up quickly fto be used for everyday goods and services and then we essentially have both marked Monetary Policy and Financial Issues in the sense of the tech company would become too big to fail and part of the government safety act. Unless one of those Companies Move into this space though i dont see table coins becoming used for everyday goods and Service Payments as some kind of Government Support in the form ofdeposit insurance or theequivalent. So it does happen , then they could be used potentially for payments but also they would be used to a large extent in the defi ecosystem and that is essentially in my view want to be shadow coin 2. 0 in terms of the government having to bail out this Financial System that operates outside the boundaries of what we normally regulate. So mister disparte since the name of your company was invoked during this discussion, when test buying from the Congress Circle circle emphasized its a payment platform that can help more businesses or enable chief international payments. A concerned also about which senator warner from virginia was concerned as you heard but on the website circle highlights the defi protocols its designed to work with and your ceo rag on twitter that your us dollar coin is the most used stable coin for making bets in these unregulated markets so mister disparte it if circle is a safe market theres why is your company also promoting its use to gamble on crypto currencies . How does that help Small Businesses or the economy . Thank you for the question. There is of course a wide range of use cases for any payment infrastructure or Payment Innovation and the software innovated Capital Markets also known as defi. The use of stable coins is an important innovation but its fundamental function is the same and the expectation of the end user is the only get a dollar out from the economic use of the stablecoin for any of these activities. Senator to me, then after senator to me we will call on senator sinema and shes on. Miss massari ive had a backandforth with the sec chairman. Mister gensler has at times indicated that stablecoin is at least some stablecoin may be securities. Even if they lack an inherent expectation of profits. But he hasnt explained to me exactly what the criteria hes using. What legal tests, what makes a stablecoin that has no expectation of profit a security and it seems to me expectation of a gain on the part of an investor is a fundamental, fundamentally at the heart of what we consider to be bsecurity to ask you if theres a noninterestbearing stable coin and most are not intrinsically bearing interest and theres no explicit expectation of profits and really the Value Proposition is theres a utility that is the reason people are abinterested in the stablecoin but in such an example do you think that it meets our definition of what is a security and should be regulated as a security . Thank you for that question. As you might imagine every practitioner in this area is extremely wellversed and i wont bore you with the Technical Details but in short in my view a noninterestbearing stablecoin fully reserved and regulated as many issuers are today asmoney transmitters , this stablecoin should notnot be viewed as security. And mister disparte i was wondering if you could give us, you made an interesting i think important observation about how rapidly this space is evolving. How the capabilities are expanding. How speed and throughput are accelerating and you made the analogy to back when the heinternet relied on dialup modems n, its a little bit faster today. And i suspect that the capabilities of these platforms to handle large volumes of transaction is also going to grow and as it does it seems to me e theres a very interesting potential for smart contracts. Could you give us an idea of how we should think about smart contracts and maybe even an example of a smart contract that would have a use case for an ordinary Small Business or consumer . Iq for the question. I would argue that the Public Infrastructure and this open Source Technology wave that is happening that many are likening to a web three where web one was read, whether to was read and write and web three is read, write own is an important innovation and has implications for Financial Resilience and competitiveness. An example of the smart contract innovation could be something from the insurance world for example. One of the most elusive is this concept of a parametric claim. When a homeowners policy that could liquidate a claim based on e. G. A reference where the disaster took place and theres no equivocation that it was lewould be an equivocation. The absence of being able to do that scale quickly and in realtime is partly solved for by a trusted dollar Digital Currency like usdc but also partly solved for what the capability is of a smart contract o. Use start to see some innovations taking place in the insurance domain but an open internet dollar functionally becomes one of the only missing links to enable that scale. Other examples are opportunities around zero default loans effectively programmable money enables you to execute even micropayments whereby todays standards setting even small amounts of money te it costs more than the sum of money sent so the ability to execute micropayments and i use an example of a journalist be able to approve a penny for every light. By todays standards is not possible to execute that payment so the freelancer is essentially a starving artist for starving journalists and a host of use cases and able by this. Being able to have sanctions compliance money movement. Corruption, bribery and fraud internationally and in humanitarian context, money is the honeypot of its capacity. Stable coin payments because of their transparency, speed and auditability can enable a whole host of applications. Usdc was used to support doctors in venezuela and as one use case of moving mediterranean funds using this innovation so in the opening innings and when people say weve failed inclusion tests the presumption isstable coin as agency just as the dollar and both are patently wrong. Thank you mister chairman. Senator sinema is recognized from her office. Thank you mister chairman and thank you to senator to me extending the questions. I also want to thank our witnesses for being here today. I cochaired the financial innovation caucus alongside my friend senator loomis of wyoming. As you know stable coins are crypto currencies pegged to other reference assets like a fiat currency and other Virtual Currencies or a combination of these assets. If more americans choose to invest in Digital Assets its important for policymakers to consider the regulatory implications of this trend and innovations putting in this ecosystem. Its great to meet you and discuss this important topic. If were looking at stablecoin how can he or she know that its backed by theasset that the issuer claims . Thank you for the question senator sinema. Today in the United States issuers, us stable coin issuers are regulated by the state in which they offer their services and where they are located. This is regulation and transmission licensing regimes. Which exist in every state but one. In addition, the regulators for Financial Crimes, purposes by a euro of the us Treasury Department as money services. That being said its primarily the state regulators that are responsible for oversight and supervision of money transmitters. The including my issuer so we would look to the state regulators to ensure that table coin issuers like other Payment Center providers instill that they are living up to their promises promises. Thank you and if i understand currently stablecoin issuers are subject to state transmitters. Do these laws disclose how the stablecoin is back . How they hold assets must be must be asked. In the event stablecoin is a truly back is there a risk they can try and redeem the issuer may not be able to provide . Or if what bigger problems for that cause in the longterm . Its a great question senator. The short answer is yes that could be a problem. Thats one reason why i atsupport commonsense strong regulations to issuers. As imentioned the states are currently largely responsible for that regulation. In my view a federal option could be explored to use the same goals. Miss massari if there is held 10 million in la particular stablecoin howmuch of the 10,000 could arizona move with backing on the coin if credible . Thats a great question and i think these are really important questions to think about as we think about how to regulate stablecoins. Unfortunately im going to give you a lawyerly answer which is it depends. It depends on the office that is available. It depends on the stablecoin holders, if they go into bankruptcy and how much money is left with the stablecoin holder. Thank you. Important issue for consumers and investors. At the same time though we should not assume its simply overlaying every law and regulation for other issuers or depository institutions might not be the correct issue. In the short term id like to hear from miss massari and miss goldstein on my question. Relative to banks or other issuers, can you highlight the key differences good and bad to policymakers thinking about regulation of stablecoin issuers . Miss massari. When thinking about stablecoin regulation, this regulation is really important. Its important to protect consumers. Its important to protect our Financial Systembut at its core the most maimportant thing is to make sure the regulation fits the activity. The issuance is different from Traditional Banking and therefore in my view it doesnt make sense to overlay the same regulations have four Traditional Banks on top of issuers. Quickly that i think that issuers in particular when they go to raise funds for their going to issue new tokens sort of have this uneven Playing Field. There elusive standards including stablecoin for pharmaceutical Companies Going into Public Markets and raising money and thats sort of like having a triathlon where youre asking 10 percent of the participants to swim. So i dont think. Sk i would like to do that personally. I dont think we should be advantaging one industry over another when it comes to fundraising on the Public Markets. Thank you mister chairman and Ranking Member i really appreciate the time to today and i thank our witnesses for appearing. This has been an senator kramer is not on. This has been an importantand eyeopening discussion. Financial regulators have failed to Pay Attention to these issues and on until its too late they devastated workers andfamilies and too many cases have been devastated in this country. The Ranking Members will continue to keep a close eye on crypto currencies to ensure this economic recovery weve worked so hard to build is not destroyed by another crisis. Thank you to the four witnesses and four senators who wish to submit questions these westerns are due tuesday, december 21. Witnesses will have or to five days to respond to any questions. Thank you to the four of you, committee is adjourned. [inaudible]. [inaudible] Us Capitol Police chief tom manger talks about the costs of defending lawmakers with the Senate Committee one year since the january 6 attack. Watch live wednesday at 10 am eastern on cspan, online at cspan. Org or follow on cspan now, our new video app. From live streams to the house and senate floor and key congressional hearings to White House Events and oral arguments. Even ourlive Interactive Program washington journal where we hear your voices every day. Cspan now has you covered. Download the app today. Alive look at the us capitol as fog blankets washington dc. 5 to 10 inches are expected. We will hear from Chuck Schumer the senate will only gavel in briefly. A vote to advance the nomination of Gabrielle Sanchez to be a judge in the Night Circuit Court of appeals will be postponed until tomorrow. The agenda includes a confirmation vote on the judicial nomination and debate on a bill offered by senator ted cruz of texas to oppose sanctions on those responsible for the north stream to pipeline. This is live coverage on cspan2