Statement on Financial Stability Oversight Council’s Report on Digital Asset Financial Stability Risks and Regulation Before the Financial Stability Oversight Council Open Meeting

Thank you, Secretary Yellen. I’d like to thank the staff of the Financial Stability Oversight Council (FSOC) for working to produce today’s thoughtful report on the financial stability risks associated with the crypto market, and I’m pleased to support it.

The first big crypto token, Bitcoin, was proposed 14 years ago this month, on a cypher-punk mailing list. It was Halloween night, 2008, in the middle of the financial crisis. Satoshi Nakamoto wrote about a new way to move value on the internet, without a central intermediary.[1]

Nakamoto — we still don’t know who she, he, or they were — didn’t have faith in the financial sector overseen by folks like us, sitting around this table.

What does the crypto market look like, now that it’s a teenager?

First, it is a highly volatile, speculative investment class.

Second, this market isn’t so decentralized. Now, we see this industry populated by large, concentrated intermediaries, which often are an amalgam of services that typically are separated from each other in the rest of the securities markets.

Third, crypto cannot exist outside of our public policy frameworks, regardless of what the crypto industry initially expected or what certain market participants might say today.  The policy frameworks include protecting investors and consumers, guarding against illicit activity, and supporting financial stability. Whether you call something a crypto token, stablecoin, or decentralized finance platform (DeFi), those public policy goals remain the same.

As Aristotle said: Treat like cases alike.

Of the nearly 10,000 tokens in the crypto market, I believe the vast majority are securities. Offers and sales of these crypto security tokens are covered by the securities laws.

Given that most crypto tokens are securities, it follows that many crypto intermediaries are transacting in securities and have to register with the Securities and Exchange Commission (SEC) in some capacity.

As the FSOC report notes, there’s a difference between regulatory arbitrage and noncompliance. All market participants benefit when there’s broad compliance with the rules. Further, it increases investor confidence in our markets. Frankly, though, in the crypto market there is a lot of noncompliance with the securities laws.

Thus, SEC staff is working with market participants to help ensure that investors in the crypto market get time-tested protections that exist in other securities markets and that all market participants have a fair playing field.

In addition, I look forward to working with Congress to achieve our public policy goals, consistent with maintaining the regulation of crypto security tokens and related intermediaries at the SEC. In doing so, let’s not inadvertently undermine securities laws underlying $100 trillion capital markets.

To the extent that crypto intermediaries may need to one day register with both the SEC and the Commodity Futures Trading Commission (CFTC), I would note we currently have dual registrants in the broker-dealer space and in the fund advisory space. Furthermore, I believe that, should bank regulators receive authority around the safety and soundness of stablecoins, it’s important that market regulators maintain conduct authority over stablecoins on intermediaries that should already be in compliance with the securities laws.

I look forward to working with colleagues to enhance the investor protection and resiliency of the crypto market. We can’t let this market undermine our broader capital markets or the economy.

Thank you.