00:00Let's go ahead and start with our questions.
00:03Mr. Benno, Mr. Lukin, as former CFTC chairman, can you describe why you believe the CFTC
00:11and only the CFTC is the right regulator for spot digital commodity trading?
00:18And can you also speak to concerns with allowing entities to list or facilitate trading in
00:24digital commodities without having to fully register with the CFTC?
00:30Thanks, Mr. Chairman.
00:32I would say the number one thing, and there's a few reasons why I've stated this in the past,
00:37you and I have had this conversation.
00:39I'll start first with the experience, and this goes back to Chairman Massett's time in the mid-2010s
00:45when we had a determination of Bitcoin as a commodity and you started to see enforcement actions
00:51coming out of the CFTC around digital assets.
00:53That's a long time ago, and over that 10-year period, the CFTC has been at the forefront of
00:59enforcement, both on the fraud and manipulation side of crypto.
01:04Enforcement doesn't just mean an enforcement action.
01:07There are staff within the agency that are conducting research.
01:11They're doing surveillance of both the derivatives markets and the underlying physical market
01:16itself.
01:16So the agency has developed, over this course of time, a really distinct and unique expertise
01:23in the digital asset market.
01:24Second thing I'll say is the expertise in the commodity market.
01:28The CFTC is over 100 years old.
01:30The CFTC has an independent agency, is 50 years old, and it understands commodity markets.
01:35And these are very distinguishable from securities markets, the way the markets are structured,
01:39in the regulation over them.
01:41And lastly, I'll say it is extremely important the CFTC become the primary regulator of any
01:47commodity asset.
01:48As you've noted, two market regulators, it's important we have two market regulators because
01:52they are independently very large, unique markets that demand different sets of regulation.
01:59I believe if there's any agency that starts to regulate commodity tokens, it becomes and potentially
02:05creates a blurred line of what is jurisdiction between the CFTC, commodity markets, potentially
02:11physical commodities themselves, and other regulators.
02:14Very good.
02:15Mr. Larkin.
02:16I would echo my colleague.
02:18I think really three strengths that really give the CFTC unique ability to oversee the commodity
02:25derivative or digital commodity markets.
02:29As Russ mentioned, expertise.
02:31I mean, the agency for 50 years has been, you know, developing the ability to look at secondary
02:36markets for commodities and that expertise, you know, whether it's surveillance, manipulation
02:41of those markets, and how best to ensure that those markets are not taken advantage by those
02:48trying to manipulate prices.
02:50And regarding cryptocurrencies, as was mentioned, the CFTC already has experience in this.
02:57We're regulating 60 products currently, futures on those derivatives, and all that goes with
03:04it from, you know, all the core principles that go with that regulatory expertise.
03:09So they already have experience in the derivatives of the digital commodity space.
03:15The second is in their mission.
03:17In Section 3 of the Commodity Exchange Act, it's unique in that it says that we should be promoting
03:22responsible innovation as an agency.
03:25That is something that Congress has had the wisdom to put in in 1974.
03:30That allows these products, as they get listed, for them to be thinking about ways that we
03:37can promote these new innovative technologies that are coming in.
03:40I think that's an important top-down mission of the agencies.
03:43They're going to help these products evolve and develop.
03:46And then lastly is just flexibility.
03:48The agency has principles-based regulation, as I mentioned, but other parts of the act foresee
03:54authority that allows it to carve out certain things that may not justly be in their jurisdiction
04:00of exemptive authority.
04:03So I think the CFTC has the tools to exclusively oversee these markets, but also with some flexibility
04:10that will allow these markets to evolve.
04:12Mr. Kim, can you talk about the importance of avoiding applying centralized intermediary regulatory
04:22requirements to decentralized software and technology?
04:26Thank you very much, Mr. Chairman.
04:28This is a very important question.
04:30Decentralized finance in its previous form allows individuals to transact with one another
04:34peer-to-peer by the use of software and code without reliance on centralized intermediaries.
04:41Notably, the software and code does not take control or custody of the funds.
04:45Of course, we regulate exchanges, not the matching engine.
04:49We regulate brokers, not the trading screens.
04:51And we regulate the centralized intermediaries, which take control and custody of the funds,
04:57Mr. Chairman.
04:58It's important to keep that in mind as we look to establish a comprehensive framework for
05:03the United States to keep innovation here in the U.S.
05:06Very briefly, Mr. Chairman, of course, as Congress has been contemplating a broader market structure
05:10framework, the focus has been on centralized intermediaries that do take control or custody
05:15of funds.
05:16Right now, as my colleagues have mentioned, there is a regulatory gap.
05:19There is no federal framework for the supervision of digital commodities.
05:23That means there's no business conduct standards, no conflicts of interest provisions,
05:26no consumer education, and it's important in order for us to cement U.S. leadership and
05:32best protect consumers that we address this gap by providing the CFTC with supervision,
05:36Mr. Chairman.
05:36Very good.
05:37Senator Klobuchar.
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