New US Senate digital assets subcommittee holds hearing on bipartisan legislation

Senator Cynthia Lummis convened the first hearing of the U.S. Senate Banking Committee Subcommittee on Digital Assets on Feb. 26. The hearing was titled “Exploring Bipartisan Legislative Frameworks for Digital Assets.”

“We have come a long way,” Lummis said as she opened the hearing. “Now we are at the point where we can move forward.”

The hearing exuded pro-crypto sentiment  

Gallego emphasized in his opening statement that “the United States must lead in this space [digital assets],” but “consumer protection must remain at the heart of our efforts.” He also spoke about inclusion and support for crypto among Black and Latino men and said that “memecoins are not about inclusion.”

The newly created subcommittee is stacked in favor of cryptocurrency. Of the nine members, five were given As by the Stand With Crypto organization and one received a B. The proponents include ranking member Ruben Gallego. The remaining three Democrats on the committee received Ds or Fs.

Testimony at the hearing encompassed digital asset regulation in general but gave particular attention to stablecoins and the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act bill. Lummis introduced the GENIUS bill along with Banking Committee chair Tim Scott, other members of the subcommittee and Democratic Senator Kirsten Gillibrand, at the beginning of February.

Stablecoins were the focus of the hearing

Jai Massari of Lightspark, one of the four expert witnesses at the hearing, said that stablecoin reserves have to be controlled by legislation, so stablecoins can compete on the basis of their use cases rather than their structure. Stablecoin holders should be the owners of their underlying assets to ensure a fast payout in the event of an issuer’s bankruptcy. 

Jonathan Jachym, global head of policy and government relations at Kraken, suggested that centralized exchange should be regulated as a first step in stablecoin regulation, as 90% of stablecoins are on those exchanges.

Former Commodities Futures Trading Commission (FCTC) chair Timothy Massad compared the GENIUS bill unfavorably to the McHenry-Waters bill developed in the House of Representatives in the last Congress.  He said he opposed allowing stablecoins to bear interest, as that created confusion with securities regulations. He suggested that the Securities and Exchange Commission (SEC) in its new composition should be allowed to operate and suggest initiatives before legislation is passed.

The hearing also addressed securities law

The final witness, lawyer Lewis Cohen, is a recognized authority on securities law. “Technology has raced ahead of legislation,” Cohen said, leading to gaps in securities law. He focused on a key point: securities have identifiable issuers that are business entities responsible for adhering to regulations.

This is not the case with digital assets on the secondary market. After a token is issued, the issuer is not responsible for adherence to securities law, the Bank Secrecy Act or Anti-Money Laundering and Know Your Customer verification. Furthermore, an issuer can cease to exist, but its tokens will remain forever.

Cohen praised the Lummis and Gillibrand’s Responsible Financial Innovation Act provided a means to separate securities from commodities. That bill was introduced in the previous Congress and did not pass. It was largely superseded by the Financial Innovation and Technology for the 21st Century Act (FIT21). That Republican-sponsored bill passed into law in a bipartisan vote in the last Congress.

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