The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem (EventID=116085)

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Connect with the House Financial Services Committee Get the latest news: https://democrats-financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinancialCmte Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Tuesday, June 23, 2023, at 2:00 p.m. (ET) full Committee Chairman McHenry and Ranking Member Waters will host a hearing entitled, “The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem." ___________________________________ Witnesses for this one-panel hearing will be: • Mr. Jeremy Allaire, Co-founder, Chairman, and CEO, Circle • Mr. Coy Garrison, Partner, Steptoe & Johnson LLP and former Counsel to Commissioner Hester M. Peirce • Mr. Emin Gün Sirer, Founder and CEO, Ava Labs • Mr. Thomas Sexton, III, President and CEO, National Futures Association • Mr. Aaron Kaplan, Founder and Co-CEO, Prometheum, Inc. ___________________________________ Digital Asset Market Structure Under the Securities Act of 1933 (Securities Act) and the Securities Exchange Act of 1934 (Exchange Act), the SEC has full authority over the offer, sale, and the trading of securities, including investment contracts, and the derivatives trading of securities. Under the federal securities laws, every offer and sale of securities must be either registered with the SEC or conducted under an exemption. The Commodity Exchange Act (CEA) and the CFTC regulations promulgated thereunder provide a comprehensive regulatory regime for the trading of commodity derivatives (e.g., buying or selling futures contracts on corn, cattle, or oil). Under the CEA, the CFTC also has “after-the-fact” enforcement jurisdiction over fraud and manipulation in the “spot” or cash commodity markets (e.g., buying or selling bushels of corn, heads of cattle, or barrels of oil). The CFTC has no statutory authority to impose registration and regulatory requirements on participants in the cash or spot commodity markets. Currently, there is no comprehensive federal regulatory regime for the spot trading of commodities. Determining whether a digital asset is offered as part of an investment contract (i.e., meeting the definition of a security) or falling under the definition of commodity in the CEA has proven difficult in the United States. Until there is a consistent, clear framework in place, market participants, consumers, and investors will continue to seek regulatory clarity given the requirements that stem from the classification of a particular digital asset. The central question of whether the SEC has jurisdiction over a digital asset is whether it falls within the definition of a security. The Securities Act of 1933 (the “Securities Act”) requires every offer or sale of securities to be registered with the SEC or meet a condition for exemption from registration. The Securities Act defines a security to include an “investment contract,” which was in turn defined by the Supreme Court in SEC v. W.J. Howey Co. Under Howey and the case law that followed, an arrangement qualifies an investment contract if it is: 1) an investment of money; 2) in a common enterprise; 3) with the expectation of profits; 4) derived from the efforts of others. The test is not a “balancing test,” rather, all four factors must be present for the arrangement to constitute an investment contract. Several characteristics of digital assets may cause it not to meet the Howey test. Generally, the SEC and CFTC have attempted to resolve the legal question of whether a digital asset is a security or a commodity through enforcement actions. However, the agencies have not always agreed on which digital assets are considered securities and which digital assets are considered commodities. For example, last month, the CFTC brought an enforcement action against the trading platform Binance, asserting Binance’s BUSD stablecoin, bitcoin, ether, and litecoin are commodities. However, Chair Gensler has stated that he considers all digital assets ther than bitcoin to be securities. Last week, in the charges brought against Binance and Founder Changpeng Zhao, the SEC alleged that certain digital assets offered and sold as “securities” included Solana’s SOL, Cardano’s ADA, Polygon’s MATIC, Filecoin’s FIL, Cosmos’ ATOM, Sandbox’s SAND, Decentraland’s MANA, Algorand’s ALGO, Axie Infinity’s AXS and Coti’s COTI tokens as well as Binance’s BUSD. These inconsistent positions demonstrate the necessity and urgency of congressional action. Stablecoins Stablecoins are a class of digital assets designed to offer price stability by being pegged to another asset’s value. The most popular stablecoins are currently pegged to the U.S. dollar. Stablecoins, as the name implies, are intended to be less volatile than other digital assets and sufficiently stable to enable them to be used in a similar manner to currency. There are... Hearing page: https://democrats-financialservices.house.gov/events/eventsingle.aspx?EventID=410530