The essence of the US hearings: how to supervise the blockchain industry? Stable currency issues

Regarding cryptocurrency regulation, the Democrats and Republicans generally focus on two directions: Democratic lawmakers focused on the lack of regulations to protect investors in the digital asset market, and cryptocurrency volatility is too large, which may endanger financial stability.

The Chairman of the Financial Services Committee/Democratic Congressman Maxine Waters is worried about investor protection. She believes that currently, the cryptocurrency market does not have a unified and centralized regulatory structure, which makes investments in the digital asset field vulnerable to fraud and price manipulation.

In addition to Maxine Waters, Democrat Al Green also raised the same question: In the past year, the market value of the crypto market has grown from 500 billion US dollars to 3 trillion, but the market is still very volatile; there seem to be many potential factors that make up the bubble. , Such as it is easy to accept credit margin transactions, opaque transactions, and transparent assets. (I want to ask) Is there a moment in the future that we need to worry about the occurrence of bubbles?

In response to questions from Democratic congressmen, FTX founder Sam Bankman-Fried said that one of the important features of the crypto market is 24-7 non-stop trading. It will not be as if the traditional financial market has overnight liquidation risks and liquidation risks after weekends/holidays. Large exchanges like FTX can clear and monitor these transactions in real time; in addition, while FTX accepts user margin transactions, users need to mortgage crypto assets.

"The other thing I want to say is that during the 2008 financial crisis, you can see that there were many transactions between financial entities that were not public, but these transactions were repeatedly packaged and leveraged again. No one knows how much risk there is until the bubble bursts. If you compare the above situation with the cryptocurrency market, FTX or most mainstream exchanges can fully grasp the risks of these unsettled futures transactions, and the information is transparent. Moreover, a complete clearing structure can control risks. We are also cooperating with CFTC to bring this system to FTX.US for use by American users."

In contrast, Republican congressmen pay more attention to whether blockchain technology can reduce the cost of financial services, whether the operation of decentralized networks is likely to usher in the Web 3.0 era, which can monopolize the information rights after the rise of technology giants, but also Right to the people.

Regarding this point, Brian Brooks, the former acting director of the OCC of the U.S. Office of the Comptroller of the Currency and current CEO of Bitfury, described the early Internet as a well-designed garden. Web2.0 allows users to create content by themselves. The next Web3.0 is to allow users to actually have control of the network, which is the function of cryptocurrency.

How to supervise the blockchain industry?

In this hearing, lawmakers are naturally quite worried about the investor protection issues brought about by the crypto industry now or in the future, and the executives of crypto companies have been explaining that the transparency of the blockchain and transaction monitoring are sufficient, so the problem Still have to return to how to supervise.

Most crypto executives at the hearing seem to believe that cryptocurrency is not in line with the existing U.S. financial regulatory structure, and legislators should consider tailor-made regulatory laws for the crypto industry.

Coinbase Chief Financial Officer Alesia Haas stated in his testimony: Because of the unique underlying technology of cryptocurrency and considering that the industry has just started, digital assets and traditional assets are actually traded in different markets. Therefore, the existing regulatory system is not suitable. This technique.

The founder of FTX, SBF, suggested that Congress can pass legislation to grant the main regulatory authority of the encryption industry to a single federal regulatory agency. FTX had previously issued the "Market Supervision Principles." It said: FTX proposes to allow the crypto market platform to choose one regulatory agency as the main regulatory agency for unifying spot and derivatives, complying with the cooperation framework, and the other as a second-level regulatory agency that holds the influence on the encryption platform, but No daily supervision responsibility.

In addition, SBF also welcomes stricter supervision of the spot market of Bitcoin or cryptocurrencies.

"I am not worried about more supervision. I think that in areas with insufficient supervision, strengthening supervision will be very positive for protecting consumers and building a strong ecology."

Stable currency issues

In addition to the issue of transaction supervision, another major focus of the hearing is the regulation of stablecoins. The Biden administration recently released a stablecoin report, which recommended that Congress pass legislation requiring federally regulated banks to issue stablecoins.

In this regard, Danelle Dixon, the CEO of the Steller Development Foundation, said that this report does analyze the risks and supervise them in a compliant manner, but the solution is still too far away.

Danelle Dixon said: On the contrary, we propose another way of regulation, through regulation that requires 100% stablecoin reserves and appropriate asset reserves to control risks.

Danelle Dixon's response also echoed the opening testimony of Circle founder Jeremy Allaire. He mentioned that the proportion of stablecoins in institutions and startups continues to expand. This is because stablecoins have reduced the cost of small companies’ international transfers and speeded up transfers. He believes that the regulation of stablecoins can be directed towards the qualification requirements for issuers.

"In terms of regulation, we have a lot of work to do, including defining the issuer's reserve requirements, liquidity and capital requirements, as well as risk management and operational flexibility requirements."