The Breakdown - Sens. Cynthia Lummis and Kirsten Gillibrand on the Responsible Financial Innovation Act

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io, near NFTX, and produced and distributed by CoinDesk. What's going on, guys? It is Monday, June 13th, and oh boy, do I have something exciting for you guys today. This episode, as our last few have been, was recorded during Consensus at the CoinDesk podcast. podcast studio, which was presented by Oak Network. Thanks to Oak for their support. Before we get into this conversation, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dig deeper into the conversation, come join us on the

Starting point is 00:00:49 Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. On today's show, I am joined by Senator Cynthia Lummis and Senator Kirsten Gillibrand. Senator Lummiss is a Republican senator from Wyoming, who is a longtime Bitcoin advocate, and who sits on the Senate Banking Committee. Senator Kirsten Gillibrand is a Democratic Senator from New York and sits on the Senate Ag Committee, which oversees the CFTC, as well as the Intelligence Committee, which is more relevant than you might think for this particular conversation. Last week, Senators Lummis and Gillibrand introduced the Responsible Financial Innovation Act, which represents easily the most comprehensive, thoughtful, balanced, and forward-looking

Starting point is 00:01:27 approach to U.S. crypto and digital asset regulation to date. I gave a full first reaction to that last week, which you can go and listen to. today's show, we discuss the bill, bipartisanship on the digital asset space, and what happens next. All right, senators, welcome to The Breakdown. Thank you so much for being here and making time. I really appreciate it. Our pleasure. Happy to be here, Nathaniel. Well, and thank you also for taking the time to be at consensus. Obviously, you know, we were just talking a little bit, and I've been in this industry for coming up on six years. I obviously have a very strong belief in the importance of what it could do. for the world, for America.

Starting point is 00:02:06 And I think it's very encouraging, and it has been very encouraging, to see a changing conversation. It's felt like a changing conversation in Washington about this. And so I guess where I wanted to start the conversation is actually with you, Senator Gillibrand, around how you started to get interested in this.

Starting point is 00:02:23 You know, Senator Lumas's story is a little bit better known in terms of her Bitcoin history. But, you know, as a New York resident in the Hudson Valley, where I'm talking to you from today, I was excited to see you get involved as well, and I would love to hear where that started. Well, for me, it started probably about eight or nine years ago when my then eight or nine year old Theodore called Theo said, Mom, I want to buy some Bitcoin. And I said, absolutely not.

Starting point is 00:02:48 And he said, come on, Mom, I need to do this. It's important for stuff I do online. I was like, nope, you're not going to do it. So I should have been a little more permissive back then. So my teenager who's now 18 has always been interested in cryptocurrency. and he knows a lot about lots of things. And that first piqued my interest. Over time, I began to meet with businesses from New York and different stakeholders in the industry to hear about what their business model was all about.

Starting point is 00:03:19 And so when I heard that Cynthia was working on legislation, I decided I wanted to be her partner. And so we started working together. And I think it's important. I'm a former securities lawyer. I practiced law for about 15 years. I serve on the Ag Committee, so I understand the importance of the CFTC. And so creating safety and soundness in the United States is really important to me.

Starting point is 00:03:43 I understand the importance of transparency, accountability, and consumer protection. And I understand how the markets work. And so if this is going to be important for the future of finance and the future of democracy building and the future of the art world, you really need to create a regulatory framework. that meets all those needs, and it has to have the flexibility and the nuance that it allows the safety and soundness, but also allows for the innovation and the growth and the continued ability for these companies to offer decentralized finance and other benefits to the country. Yeah. So the appearance from the outside is that this is an area, I mean, obviously exemplified

Starting point is 00:04:26 by you guys working together on this, but an area that hasn't sort of found its way into standard partisan mold yet? I mean, is that what you guys have found as you've gone out and, you know, talk to stakeholders, talk to other members of Congress around these ideas? We have found that, and isn't it great, we have found that I can walk up to Democrats and have this conversation as easily as I can walk up to Republicans and have this conversation, and so can Senator Gillibrand. And that's true not only within the Congress, but within the regulatory framework in Washington and out in our communities. And to have her as a partner, since she is on the Ag Committee, they have jurisdiction over CFTC, I'm on banking, we have

Starting point is 00:05:12 jurisdiction over SEC. You know, it's just a really good blend, and I just couldn't be happier with the enthusiasm, cooperation, interest, and a willingness to learn that we've found as we've been rolling out this bill. So one of the things that I personally was super impressed and pleased to see with this bill is the actual attempt to solve this thorny question of not just where the SEC ends and the CFTC begins, but a more kind of first principles question of what actually are these new types of assets? And so there's this idea of ancillary assets. It feels like that must have been a huge amount of work, exploration, legal conversations,

Starting point is 00:05:57 different types of expertise to come to something that, that sort of, you know, started to make sense. I guess how did that process come together? Was it as monumental as it seems like it must have been? For sure. And it was about talking to a lot of stakeholders and regulators and academics about these very nuanced issues. You want to look at traditional definitions like the Howie Test.

Starting point is 00:06:18 We wanted to understand what the Howie Test would mean in the digital asset context. We worked with the SEC to refine our definition of what a security is in this legislation. We created absolute descriptions of each hallmark of a security, which I can tell to you if you want. And we made sure that if you're offering something, a digital asset to raise money, like you would be offering a stock of a company, then it's going to be a security. We've also dealt with stable coins. We have made it clear that in order for a stable coin to succeed in the U.S. economy, it's going to happen. to be 100% hard currency asset backed or insured by the FDIC. And so we've attempted to look at a whole variety of instruments from DAOs to ancillary assets,

Starting point is 00:07:13 things that are pretty clearly commodities like Bitcoin and Ethereum, and some of those that have become adequately distributed and decentralized to be commodities, while still recognizing that a lot of these initial offering tokens are going to be securities at the beginning because the SEC really has a good level of experience with disclosures and can help with consumer protection for a brand new issue that behaves like a security when it's first issued. And then maybe over times becomes more decentralized,

Starting point is 00:07:50 allowing it to look more like a commodity and then have its primary regulator be the CFDC through spot market and futures markets as well. And I think the one thing that's unique about how we looked at this legislation is we fundamentally looked at the purpose of what the digital asset is. Because you can't say all cryptocurrencies are X or Y. That would be a disservice to the industry and a disservice to innovation. To have a community organizer in Oakland, California, using a digital asset, using a token, to not only spread democracy, but to organize, to offer social services, to do voting rights and organizing.

Starting point is 00:08:31 That's not a broker-dealer offering a security. That is a community organizer, organizing his community. But we have very sophisticated businesses in New York City who want to be broker-dealers, who want to be registered, who want to offer all traditional financial services to institutional customers, and they need proper regulations so that they can, offer these services worldwide. And so they're looking for a very different kind of regulation. And you can't just say all cryptocurrencies are one thing because Bitcoin and ether are far more

Starting point is 00:09:03 mature. They're entirely decentralized. There's a threshold of how much maturity you've had and what your now purpose is. And so that's why I think people are unsure of what the legislation does if they haven't actually had a chance to read it because it's very specific. It's purpose-driven and some of it's going to go to the CFTC and some of it's going to go to the SEC and some of it's not going to be regulated by either. Yeah, I think that it's sort of a sign of its sophistication that you actually have to understand

Starting point is 00:09:33 the digital asset industry to understand why it's making the decisions that it's making. But that's really important, you know, and going back to what we were just saying about sort of the nonpartisan nature of this new industry, you know, I watch almost every hearing that relates to crypto, you know, end to end. and the dividing line tends to be just who's taken the time to prepare and dig in and have the work

Starting point is 00:09:57 and have sort of openness to different ideas. I think it's probably a good thing that the legislation reflects the complexity of the space. I want to hone in on this word disclosure that you used. You know, obviously the balance always with this type of regulation or legislation is innovation versus protection, right, and where those lines fall. It feels to me, like the approach to investor protections here is neither on the side of, you know, go do whatever you want, nor is it on the side of some people can do X,

Starting point is 00:10:28 some people can do Y, but more in the middle of, let's make sure that people have equal access to information, that information is actually disclosed and shared the way that it needs to be, that it's presented in a form that meets certain thresholds of kind of, you know, credibility and, you know, fullness. I mean, is that kind of what you guys were going for

Starting point is 00:10:46 in terms of the approach to investor protections here? It is. We've tried to go with light touch disclosure through the SEC because there are tens of thousands of cryptocurrencies. And so the workload at the SEC is going to be enhanced, increased as it is at the CFDC. So we want to make sure that the disclosures are attainable through sort of the light touch approach, but nevertheless provide an adequate amount of consumer protection because Nathaniel, some of these are frauds. They're just absolute scams. And so we want to make sure that we're trying to balance it.

Starting point is 00:11:29 So vet and get rid of the bad guys and nurture the good guys. Yeah, this is something that we talk about on this show all the time. Routing out actual fraudulent actors is not a sign of overreach. I mean, it's good for the industry to do for itself. It's good for regulators to do. clears out space. NXO lets you easily buy crypto with your bank card and earn industry leading interest rates. Earn up to 16% on crypto and up to 12% on stable coins.

Starting point is 00:12:02 Nexo makes passive income easy with interest paid automatically and daily. With NXO, you can also borrow against your crypto at 0% APR and exchange over 300 pairs. Receive a welcome bonus of up to $150 in Bitcoin until June 30th at nexo.io. That's neexo.io. This episode is brought to you by NIR, a climate neutral, high speed, and low transaction fee, layer one blockchain platform.

Starting point is 00:12:32 NIR is a blockchain for a world reimagined. Through simple, secure, and scalable technology, NIR empowers millions to invent and explore new experiences. Business, creativity, and community are being reimagined for a more sustainable and inclusive future. Reimagined your world today. at near.org. The breakdown is sponsored by FTXUS.

Starting point is 00:12:58 FtXUS is the safe, regulated way to buy and sell Bitcoin and other digital assets with up to 85% lower fees than competitors. There are no fixed minimum fees, no ACH transaction fees, and no withdrawal fees. One of the largest exchanges in the U.S. FDXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCs, you pay no gas fees. Download the FTX app today and use referral code breakdown to support the show. I want to also talk about and hone in on stable coins for a minute.

Starting point is 00:13:34 Stable coins have been a huge focus in the news, you know, sort of on regulators' minds. One, I think, because of, I mean, Libra and Facebook kind of getting that ball rolling. Two, obviously because of the kind of confluence with central bank digital currencies. How do you guys see stable coins evolving in terms of? of where they fit in the money system? So our bill tries to create the basic safety and soundness by saying it has to be 100% backed by Fiat currency. You have to have 100% reserve so that there cannot be a collapse like we just saw.

Starting point is 00:14:11 And that is what defines a stable coin. So a stable coin that's based on an algorithm and not backed by a Fiat currency would not qualify as a stable coin. You'd have to call it something else. It doesn't mean you can't create it. It doesn't mean you can't offer it, but it may well be offered as a security or be a commodity. It'll depend on what your purpose is and how you structured it. So we want to make sure that if you are going to use stable coin, that it's indeed stable.

Starting point is 00:14:40 And it would be the instrument that's dollar backed or dollar denominated that would be direct to retail. So behind the curtain would be, if we ever have one, a CDBC. So we do not support a CDBC that is a retail CDBC like the digital you want. We think that's bad. We want a CDBC to be wholesale to wholesale, central bank to central bank, if we decide to have one. And that stable coins would be the interface with the consumer. And so for this legislation, what we did is create a study to look at CDBCs and to actually do a thorough. review of the digital yuan. Because one of the things I come from both the ad committee and the

Starting point is 00:15:29 Intel committee, one of my biggest concerns about the digital yuan is that it has nothing to do with money and has everything to do with intelligence gathering and spying on the Chinese people. And so we just need to fully understand what they're doing, how they're doing it, and why they're doing it so that we can inform ourselves if America ever wants to consider having a digital dollar what it would look like and who it would be available to, Justice and the said that it wouldn't necessarily be consumer facing. And so because if you did do that, you would have 100% transparency on every transaction forever, which is probably not what the American people would want. So that's why we're studying it in this bill. So we have a study for this place to begin

Starting point is 00:16:11 to discuss it so the American people know what we're talking about and why. And then that will tease us up for creating some consensus on future legislation, perhaps on that topic. I think that it's really important to have that international view as well as it relates to stable coins and central bank digital currencies. One of the things that's interesting is that if you look at the broad perception of which governments are farthest along with a central bank digital currency, you would say China, right, in terms of a government-offered thing. They're out there testing it. It's in the metro and things. But if you look at actual usage of a synthetic version of fiat, the U.S. dollar is so lightning far ahead because of U.S.D.-backed stable coins, right? It is a huge growth thing. And one of the things that was fascinating is when the COVID crisis happened, I remember talking with people at Circle and other places. And one of the things that they saw was people in Argentina, people in other places, places that are sort of heavily dollarized and relying on the dollar. trying to adopt stable coins as well. And I think that it's interesting as something that is clearly potentially important for the future of the U.S. dollar as a reserve currency of the world

Starting point is 00:17:24 versus something that threatens to undermine it. Right. Yeah, Nathan, among the things we want to do is now that we have the bill filed, of course, we want to talk about how we can educate our and inform our colleagues so we can begin to move this bill through the system so it can be vetted. We need to work with members of the House of Representatives to do that. We need to work with members of the regulated community so they can become advocates for the bill or our detractors can contribute to making it a better piece of legislation. But at the same time, we need to begin to interact with other countries. So we can see how our framework interfaces with other countries as well.

Starting point is 00:18:12 So we're going to be playing three-dimensional chess as we move forward on this subject. And one of our biggest goals was just to make sure the U.S. market wasn't left behind. We want to make sure that our markets are regulated in a common sense way so that consumers know they have a level of information and protection that gives them value and knows that this is a industry that can stay in the United States and thrive in the United States. It allows business owners to create business plans and allow them to continue to innovate

Starting point is 00:18:49 and grow their businesses. But if you don't have basic rules of the road, then as Cynthia said earlier, you're going to have too many players who are fraudulent. You'll have too many people who are trying to take advantage of the American public. And so our job as senators is to make sure this market can thrive and survive

Starting point is 00:19:07 in a place that is safe. Well, I so appreciate you guys. guys taking the time to come join us on the breakdown today and even more taking the time to engage with obviously this issue that so many of us have decided to make our careers and lives around. As we wrap up, what can the crypto industry, people who are interested in this space do to help this effort? Well, I would say read the bill, understand what it says, don't spread rumors, and just understand what we're trying to get at. We do want feedback. That's the whole point of publishing this bill now right before consensus because we want people to look at it, understand it.

Starting point is 00:19:44 Not everybody understands the entire market and understands how diverse it is, and I would just urge them to read it in the lens of what other people are also doing in the industry so that everyone has a place. And I would say if you're in a state where you're among the people who understand this subject, call your senator and representative and say, you know, we like this. bill and if you want changes to it, call us and we'll work on that. Yeah. We tried to do our due diligence by talking to lots of members of the SEC, members of CFTC, lots of staff from all the committees of jurisdiction, stakeholders, advocacy organizations, industry players throughout the

Starting point is 00:20:30 country. And so we tried to get as much information as we could and it's not necessarily going to be perfect, but we're committed to working hard to get it right. And we want this to be the framework that the four committees of jurisdiction in Washington ultimately take up. Well, it's a wonderful start. And, you know, I know our audience is here to help. So thanks again, and thanks for being on the breakdown. Thank you. It's fun to be on the breakdown. I listen to you. So it's great to be your guest. Awesome. As you can probably tell from the tone of the interview, I was both surprised and impressed with the Responsible Financial Innovation Act. It confronts head-on some of the thornyest issues that have remained

Starting point is 00:21:08 contentious for the entire history of Bitcoin in the U.S. In so doing, regardless of what happens with this bill specifically, it has reset the debate in important ways. I also find it extremely encouraging that the senators and their staffs are finding bipartisan engagement with the topic. I don't believe that something as fundamental as the future of technology, money, the dollars reserve status, etc., should be the domain of anyone party alone. I'm excited to see how this legislative process develops, and I'm extremely thankful to Senators, Lummis and Jillibrand. again for joining the breakdown. Before we wrap a big thanks to my sponsors, nexo.io, near NFTX, and thanks to you guys for listening.

Starting point is 00:21:46 Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Sens. Cynthia Lummis and Kirsten Gillibrand on the Responsible Financial Innovation Act

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.