What regulatory signal did the US Senate's "encryption collapse" hearing send?
Compilation of the original text: Bitui BitpushNews Mary Liu
Compilation of the original text: Bitui BitpushNews Mary Liu
The U.S. Senate Banking Committee held a hearing on Tuesday titled "Crypto Crash: Why Digital Assets Need Financial System Safeguards." The hearing covered this week's hot topics, including stablecoin regulation, consumer protection, and crypto banking. , whether a self-regulatory organization is needed, and how the U.S. Securities and Exchange Commission (SEC) should work with the Commodity Futures Trading Commission (CFTC) to regulate digital assets.
The senators are mainly concerned about the classification of encrypted tokens, how different institutions will divide the work and cooperate, and how to meet the growing demand for encryption to be part of the banking system.
Senate Banking Committee Chairman Sherod Brown (D-Ohio), who wants to begin developing a bipartisan regulatory framework for cryptocurrencies, heard testimony from Linda Jeng, a law professor at Georgetown University, and Yesha Yadav, a law professor at Vanderbilt Law School. Chief Global Regulatory Officer for the Innovation Council. In the testimony of Lee Reiners, policy director at Duke University's Center for Financial Economics, the experts laid out a sweeping new approach to regulation.
According to Reiners, he believes Congress should clarify that the SEC has the authority to draft rules governing DeFi applications in addition to formal crypto businesses. Jeng and Yadav argue for innovation, financial inclusion, diversity in the user base, and other countries like China taking the lead. Reiners advocates for consumer protection, financial stability and whether this is really an asset class or just gambling. SEC Chairman Gary Gensler was absent from the hearing, and the committee says he must appear in September -- which may be too late.
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U.S. Securities and Exchange Commission (SEC) Vs. U.S. Commodity Futures Trading Commission (CFTC)
Reiners asserted that the SEC has control, noting that the CFTC regulates commodity derivatives but not commodity physical markets. The net effect of the structure is that cryptocurrency exchanges in the U.S. are currently exempt from federal regulation, precisely because lawmakers want to consolidate the way cryptocurrency exchanges are regulated at the federal level. This would increase clarity and reduce the likelihood of crypto companies being penalized for not knowing how to conduct business, as was the case with Kraken and its Ethereum staking service recently.
According to his statement before the hearing, Reiners believes that “the best and most feasible path forward is for Congress to remove cryptocurrencies from the definition of commodities in the Commodity cryptocurrencies are considered securities under the law". In short, Reiners believes that the SEC should be the primary regulator focused on cryptocurrency exchanges.
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Regulate DeFi
Making DeFI the topic of today's hearing is subtle, but important. “Several companies have developed online user interfaces that allow users to access DeFi protocols. These companies should be required to register as broker-dealers,” Reiners noted. This will affect many companies and projects, such as Aave and Compound.
stable currency
stable currency
Reiners’ proposal would also give the SEC oversight over stablecoins, something Senators Elizabeth Warren and Roger Marshall would likely agree with. If lawmakers follow the law professor’s guidance, regulators will strictly require all stablecoin reserves to be held in cash or U.S. Treasuries. For example, cryptocurrency exchange Paxos was recently ordered to stop issuing stablecoin BUSD due to potential irregularities.
The idea also includes subjecting stablecoin issuers to routine audits and disclosures, and possibly even banking supervision.
Instead of deciding whether stablecoins are commodities or securities, Congress could simply instruct the CFTC and SEC to jointly develop rules and share enforcement agencies in stablecoin cases. There is precedent for this, as the two agencies joined forces in 2010 to create Title VII of the Dodd-Frank Act, which outlines the regulatory framework governing derivatives. Congress could authorize the SEC to regulate them like money market mutual funds, with strict requirements that stablecoin reserves be held in cash and Treasuries.
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