One of the powers of our industry is the fact that regulation can become algorithmic, so you dont have to think well, which person is going to sit down and look at this big pile. Think of the irs and tax returns, we could quadruple the size of the irs. We still couldnt audit, every single american, its just not possible, and so what you have to do is say: what tools do we have at our our capability and whats magical about? Cryptocurrencies? Is that in the transactions themselves they can carry metadata, they can carry identity. Rule makers and policy makers can take a step back and say well, these are the things that work we care about and we can make sure inside the systems that those things dont settle and clear until those things are present. So its really more of a conversation of of what do you care about and then what we can do as technologists is create a self certification system. And then what can happen is when there are anomalies or special cases, which often would be rare, then the cftc or another regulatory body could look through and say well lets investigate that thats generally how we do law enforcement in the nation uh we dont break into Everybodys house, we wait until we get a warrant, you have to have some cause for it, so there needs to be some social infrastructure, so self certification is different than an agency regulating well theyre, interconnected um.

So you have sros, you have market standards, you have principles and in many cases financial regulation is mostly uh done by sros or private organizations. If you look at, for example, compliance its not the sec or the cftc going out there doing, kyc and aml its banks that are doing these types of things, so its a public private partnership and what needs to be done is to establish those boundaries. And then what we can do, as innovators is write software to help make that happen and literally thats what chanalysis is doing right now and their competitors. I i think i mean i dont see a way for the us to to regulate them all. I do think theres got if its going to happen. There has to be some type of self certification of it. What what i? What i do fear, because i i dont think that crypto should be a significant portion of the average investors portfolio director mcgonagall. Can you speak about how federal regulation of crypto trading platforms under the commodity exchange act is related to market transparency and, ultimately, to ensuring that retail investors have access to the information they need to properly weigh the risk involved? Thank you congresswoman. I appreciate that. I appreciate the question in thinking about uh spot markets, say in particular, and um overlap of an issue uh that we are focused on on for derivatives. Products deals with the concept of the prospect around leverage, an understanding by the individual investor, particularly where that individual investor is a retail participant that that they know and appreciate the risk of trading um.

While there may be um good upside for putting say 50 cents down and having a dollars worth of a position, theres incredible downside, uh. If the market moves against against your position, so at cftc were focused not only on market integrity, that we want to have a centralization or a place where market participants can come together and understand what the pricing is. But we also look to have a system of intermediary oversight that focuses on retail market participants, say in particular with a disclosure regime that informs those market participants of based on who theyre dealing with so, for example, if its a commodity trading, advisor or commodity pool operator. That the risks of the trading strategy are disclosed as well as associated fees. Those are disclosed that that individual market participant understands how their funds are being protected or utilized at a futures. Commission margin, for example, that those funds are segregated and how those funds can also be protected, for example in the event of a bankruptcy. So we we do look for execution certainty as well as customer protection as part of our regulatory regime and – and i think, thats helpful to the dialogue here. Mr brummer um should cftc have a direct statutory authority to regulate uh cash markets. Well, the cftc, as i said, is certainly up to the job under a certain number of circumstances, number one obviously has to be financed and resourced properly. Secondly – and this is really the point of the of of the conversation, all the regulatory agencies have to really have a change in their mindset.

I think what youve heard from almost all the witnesses is that the underlying infrastructure is very different from the infrastructure upon which many of our both securities and derivatives laws are based and to really adequately um oversee these markets. Some degree of of familiarity with those markets is going to be necessary so whether or not the sec or the or the cftc, but the cftc is certainly up to the job. It has certain kinds of comparative uh advantages and its those advantages that should be levered and and to build upon those areas like disclosure where it has not traditionally wielded its its authority right im struck by the the line. In your testimony where you said it will necessarily involve revisiting long standing assumptions about market infrastructures embedded in securities and derivatives law and adapting the regulatory system in creative ways that reflect the best of our experience and collective values um. What does that mean? Yeah i mean it means, for example, that in the securities law context, our entire disclosure system is based off an assumption that issuers have non public information that other expert actors dont have, and so, therefore, you need to make sure that information is available to them and It kind of trickles down to your retail investor, so its based our the evolution of our disclosure system, even in securities law, is for information to be filed, but not really read when you go and you operate on a blockchain completely different context in part, because much Of the material, not all, but much of the material information that you need is already available on chain, but its only accessible to the expert actors, its the retail folks, who would not have the ability to read and to understand the source code.

So that gets you into a question as to what should the disclosure system look like should probably have more consumer protection principles and to think about how do you get that information to those people in that system? Could you speak to how prevalent risky cryptocurrency exchanges are such as those that lack know your customer rules may have criminal ties or maybe connected to the dark web? Thank you congresswoman, and yes, this is exactly what chain analysis focuses on is mapping all of the different participants that actually facilitate transactions in cryptocurrencies and to your point, we have seen over the last few years. You know, exchanges in offsh in offshore jurisdictions actually used to facilitate the laundering of proceeds from things like ransomware, and so you know, ofac has taken action to designate certain of these exchanges like suex and chad x as cryptocurrency exchanges that have facilitated that. I think that does speak, though, to the ability for us to focus the discussion here on. How do we appropriately equip a market regulator with overseeing the venues that we think should form the reference prices for these commodities and ensure the orderly functioning of markets? Um and also you know, weve seen treasury uh take. You know necessary action to enforce their rules around aml across the board. Um internationally, as well and thats, been very clear in sort of the actions that treasury has taken. Mr had has consumed. Did i say that im trying? Thank you very much, and i know we just have a few seconds left but theres a lot of discussion about whether we should regulate certain cryptocurrency as commodities or securities um.

You know, what do you think might the benefits, and maybe you could talk just a little bit about that um. You know what are the drawbacks things like that. Well, with uh 37 seconds, im, sorry yeah! I know the gentleman can take as much time as he cries. Oh thank you mister. Well, i appreciate that. Thank you. I mean dont push it but its a fine line. Here you got to be careful im italian, so you know when you look at cryptocurrencies in general. Ive always viewed them like financial stem cells, theyre theyre kind of more fundamental than a particular category like a currency or a commodity, and really it depends on the markets. Theyre traded on and the use and utility that they have, but at the end of the day, you have to ask yourself what public policy considerations are you attempting to satisfy? Is it sanctions compliance? Is it consumer protection? Is it market stability? What we do as an industry is were all about transparency, so its kind of funny were talking and debating about disclosure regimes, theres no other financial asset in the world. That really is as transparent as a cryptocurrency, every transaction from the very beginning for bitcoin, for example, from january 3rd 2009 is known. Every single one, the holdings of the founder are known because all of these things are publicly available to everybody. So its more about my view, understandability and the tooling required to make this work on a global basis.

So i dont think it would be wise to say well.

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