So, we're going to resume the program. Public service is truly noble and a selfless public servant is very, very noble. We have the great blessing and privilege today to have three public servants with us who have distinguished themselves and who really have added so much to the republic, to our democracy, and to our markets. And I'm pleased to and I'm proud to call them my friends.
I would like to introduce our first panelist, Congressman, and I'm used to saying Chair Patrick McHenry. Patrick McHenry is a former US Representative who served 10 terms representing North Carolina's 10th Congressional District. As chairman and member of the House Financial Services Committee from 2018 to 2024, he played a key role in shaping policy on cryptocurrency, fintech, AI, and corporate governance. In 2023, he made history as the first ever Speaker pro tempore of the House, guiding the Republicans through a leadership transition while helping negotiate the landmark Fiscal Responsibility Act. I am very proud that he is also a distinguished fellow of the Psaros Center for Financial Markets and Policy.
I'd like to introduce Rostin Behnam who served as chairman of the US Commodity Futures Trading Commission, the CFTC, leading the agency from 2017 to 2025 through roles as commissioner, acting chairman, and chairman. During his tenure, he steered the CFTC beyond the Dodd-Frank rule-writing era, focusing on modernizing the agency's approach to rapidly evolving derivatives markets. Rostin prioritized risk management, efficiency, innovation, customer protections, market innovation, and international comity during his tenure. He is a proud Hoya and he is also a distinguished fellow of the Psaros Center for Financial Markets and Policy.
Our moderator is Mike Piwowar. Mike Piwowar is the executive vice president of the Milken Institute for Finance and a former commissioner of the SEC, the US Securities and Exchange Commission. His policy expertise spans roles as chief economist for the Senate Banking Committee and senior economist at the White House during the financial crisis. If you can imagine that, Piwowar holds degrees from Penn State and Georgetown and brings a deep background in finance, economics, and public policy. I thank him for also serving on the board of advisers of the Georgetown Psaros Center for Financial Markets and Policy. And very importantly, he is a hardcore fellow Pittsburgh Steelers fan.
Go Steelers. Fellow Yinzers. Right.
There we go. Thanks, Mike. Mike, and thank you for everything you do for the Psaros Center. I mean, this is just extraordinary how much this has grown in the last few years. So, thank you, Mike.
So, it's my pleasure to moderate this panel of distinguished fellows and distinguished people up here. Looking forward to a great conversation on digital assets. We're also going to get a little bit into prediction markets because that has become a hot topic lately and I know both of our panelists have particular views on that. We're going to definitely make sure that we leave extra time at the end for students with questions. I saw the first crypto panel and there was like 15 students lined up to ask questions and they always ask better questions than moderators. So, we're going to leave plenty of time for that.
So, with that, let me do another quick introduction to these two. Mike did a fantastic introduction, but I would also like to give Patrick McHenry a shout out. He was the first chairman of the House Financial Services Committee to create a subcommittee on digital assets and fintech and financial inclusion and actually embrace the idea that this is something that Congress needs to grapple with. And he was also the first chairman to author legislation that actually got passed out of the House on digital assets, what was called Financial Innovation and Technology for the 21st Century, the FIT21 Act. So, congratulations on that. And on an overwhelmingly bipartisan basis, it was important.
Rostin Behnam in his role as CFTC chairman. It is not an exaggeration to say that in the last administration that Rostin was the most forward-leaning regulator when it comes to digital assets. And he is still someone that members of Congress to this day as they're working on legislation and the agencies are thinking about the regulations, they reach out to on a bipartisan basis for his expertise. So let's go ahead and get started.
So this year's, the theme of this year's conference is technology and transformation in financial markets. So against this backdrop we do have an incredible amount of transformation. You heard in the first panel with the industry experts what's going on in terms of potential legislation coming forward to provide legal and regulatory certainty for digital assets in the United States. So Patrick, give us a, where are we in the legislative process in terms of where we were in last Congress and where we picked up in this Congress.
Well, a couple things. So last Congress I had made the decision that we had two different policies. One that would be overwhelmingly bipartisan. I had the most fruitful conversations with my counterpart who is a ranking member on the Democratic side, Maxine Waters. When she was chair, she was comfortable with us legislating on defining what is a stablecoin. What we did was copy the New York model. The New York model told us a lot about what worked, what didn't work, and we took the best ingredients of that and moved that to federal legislation.
Now, that split between that and then the market structure bill. So, a payment stablecoin is under a payments regime. When we talk about overall crypto markets, it is the division between the Securities and Exchange Commission and the CFTC and these things can be separated, but it was an active political choice to get what I could get legislatively around stablecoins. Now that bill we couldn't actually get finalized and passed out of the House because of, well, we passed a different bill that did not have wide bipartisan support out of committee. So, I was wrong on this assumption that the most bipartisan thing would be stablecoins.
Right, that it would eventually become bipartisan because that was the first thing passed this Congress with a wider margin than market structure has passed. Last Congress we passed FIT21. The FIT21 was the market structure bill between a committee, the Financial Services Committee dividing between the CFTC and the SEC regulatory powers around crypto. The definition of a digital asset is in that for the first time the federal government would have a definition under federal law of a digital asset. We made a number of choices about how to regulate and ensure consumer protections, capital formation, and we made a significant number of important decisions in that bill.
My point person on the bill was French Hill. It was his legislation. He named it. He carried the bill. He helped sculpt and craft every bit of it. We worked hand-in-hand together with it. He was my vice chair. And now that he's chair of the Financial Services Committee, I have found out where we had disagreements on those policies.
Because FIT21 became the Clarity Act. Sorry, I can't even say it because you see, so I said French named it last Congress. So you see my little tweak here. So he renamed it. Is this too soon? Too soon. Seriously.
So he renamed it. He made some significant changes to it, but it's very, very similar to what we did with FIT21. The changes I could tell you about, but your eyes would just, you would just close your eyes and sigh because they're so small but very particular in the crafting of how we worked the legislation.
They took the stablecoin bill, passed it out of the Senate, passed it out of the House. The House then accepted the Senate position and the GENIUS Act was signed into law in July. That had a wider vote than we got on any other crypto matter last Congress and it got a wider vote than we got on market structure last Congress and a wider vote than we got on market structure this Congress.
But wide bipartisan support on the market structure bill that was passed out of the House this summer. Now you're working through the Senate. In the House, I started a process with Republicans and then invited Democrats in. We started that process seven years ago in the House of Representatives. So we've walked through this policy in excruciating detail and if you're informed in the House on crypto, you're among the most informed of anybody in Washington DC on the House Financial Services Committee. You're one of the most informed people. We've gone through all the trade-offs in this. The Senate has done like four minutes of work on this.
And so what they're figuring out is this 12 steps, the 12 steps of grieving and all this process. And we're seeing it in lifetime when they have the pressure of the White House, of Washington, of the whole world of crypto saying, come on, catch up. And so they're catching up in public view. And we're going to see it in vivid terms in the next two months where the Senate is at its finest or less than finest.
So where we are right now is the attention is on the Senate and the pressure is on the Senate to take what the House finally crafted and passed with an over two-thirds vote in the House of Representatives. And so what we're seeing here is in public the private bit of coming to terms with legislative craftsmanship and why things are the way that they are and the trade-offs you have to make in these policies. So I think you'll see a bill and I think what you'll see is the Clarity Act. In essence, this is going to be the most inflammatory thing I say to you, Rostin. As a former Senate staffer, I think you're going to see largely what is the Clarity Act signed into law. And I think it's going to be about 90 to 95% of what is the Clarity Act signed into law. The Senate has not yet come to terms with it. So, please, if you see senators, don't share this. They have to come to that conclusion themselves.
Yeah. No, I mean you made a number of great points in there, right? I was just in a conversation with some members of the Senate Banking Committee and one of the members who's very knowledgeable about blockchain said, 'Look, you guys going to have to dumb this down because most senators don't even know what digital assets are.' You made the point that it's overwhelmingly bipartisan basis that this thing got passed. It was interesting at the Milken we did a just a quick back of the envelope analysis of the members in the House and the Senate who tend to vote for the stablecoin bill and the markups on the other digital assets and we mapped it along the political spectrum and it kind of follows that but what it really follows is age that younger members of Congress tend to embrace crypto more than older members of Congress. And it's followed through on the stablecoin bill, the digital asset market structure legislation. So, we'll see if that bears out going in the future.
And the Senate is the older chamber, the younger chamber.
Again, I'm going inflammatory to you as a former Senate staffer.
I don't know if I need to start just talking about Senate rules first.
Well, that would actually explain a lot.
Yeah. No. Well, so I want to get that. So, right. So, Congress at some point is going to pass a bill and it's going to grant authorities to the SEC and CFTC. They're going to figure out what the jurisdiction is there. Right. So, take us behind the curtain of what the CFTC is doing now. You're not just, they're not just sitting around waiting for the legislation to get dropped. Right. So, there are a bunch of very technical complex issues that folks at the regulatory agencies. Talk to us about what's happening.
You know, a couple things first though and I, you know, great to be here and Mike, thank you as always and Reena and Mike as well. But I think I've been on this stage talking about digital assets for years and Patrick and I have been talking about it as well, which is a great sort of proxy for how the executive branch works with the legislative branch. But when you're at a market regulator, your boots are on the ground. You're observing what's happening in markets, you're observing new participants, new financial assets, and then areas that the current legal structure doesn't allow you to police and regulate. And then that's when I go talk to Patrick and we start to have a conversation. We agree, we disagree, and ultimately legislation is born.
But over my, you know, seven years at the agency and four as chair, we saw this growing maturing market. I spoke a lot about it in the public. I spoke a lot about it to members of Congress and there was actually a fair amount of progress certainly in the House thanks to Patrick but also a number of bills were filed in the Senate in '21 and '22 and then it has been a bumpy road and I think it's easy today given the size of the market. I think we're near $4 trillion in market cap. A lot of exuberance, a lot of excitement, a lot of support from the White House. But it hasn't been smooth, right? 2022 was pretty rough. That definitely turns members' opinions about what they feel about the technology and whether or not it should be regulated.
Also, one quick note about the age factor or sort of stat. One conclusion I've thought about is for those of us who were around during the financial crisis 2008-2010, me in a policy advisor capacity there, there are scars from those years with members like that was, you know, there's a lot of students who were very young when that happened but that was obviously hugely detrimental to our country, our capital markets and our psychology and I think members who lived through that process are politically very skeptical and have a little bit more guard about new financial products, new financial assets, and what it means to regulate and legislate.
To your question, Mike, the CFTC does not have authority over commodity digital assets, spot market, and that really is the problem. If you look at that $4 trillion market cap, you include some of the major tokens or commodities, you're talking about 60 to 70% of that $4 trillion is unregulated. The SEC can't touch it because they're not securities. The CFTC can't touch them because the CFTC doesn't have spot market jurisdiction, only regulates derivatives.
What does that mean though?
So that means, and I always use the agricultural analogy because it's the easiest, the CFTC regulates corn futures contracts, oil futures contracts. It does not regulate the underlying market, the spot market. So grain elevator in Columbus, Ohio, there are transactions between a farmer and a grain elevator for bushels of corn. The CFTC does not regulate that. What they regulate is the Chicago Board of Trade, which is where agricultural futures contracts are traded and that's been the case for over a hundred years. The relationship between spot and futures contract is very integral and it's very important that both markets are healthy.
So, Congress gave the CFTC authority to enforce underlying markets, spot markets, if there's fraud or manipulation. So only in those two circumstances can the CFTC step in and use its civil enforcement authority. And that was my experience over four years and even going back to 2014. Tim Massad is a member of the advisory board. He was the first chairman when we started to observe crypto mature. All of these enforcement cases but no traditional regulatory structure, no registration of exchanges, brokers, introducing brokers, custodians, any of the infrastructure of the market, the trade cycle is unregulated and that puts people at risk, right? You have leverage, you have defaults, and then people start to lose money.
The CFTC has been proactive since I left in February. Obviously a very different environment with this White House and the support for crypto asset regulation. I think the GENIUS Act gave a huge push to all of the regulators. I'll note one thing that happened at the CFTC maybe two weeks ago, maybe even earlier this week, is starting to do a little bit of an examination about the role of stablecoins within the context of collateral. Derivatives markets are leveraged. Margin and collateral are key components. Typically, under the existing rules, a lot to do with post-financial crisis, collateral can be cash or treasuries. Two high quality assets. You really don't want to go anywhere else because you start to have volatility and risk associated with that asset. You want it to be very, very strong and very resilient. Cash and treasuries.
Now, the CFTC is looking at stablecoins and whether or not stablecoins can be used as collateral for margin. That's a big deal. I'm glad that they're taking steps to look at it, but it is potentially a little bit of an indicator of the trajectory we are on, I think, collectively about the role of digital assets vis-a-vis traditional markets, and that integration that's going to happen. So, CFTC is on hold, waiting for clarity or some version of clarity to move through the Senate. Maybe I'm a little bit less optimistic than Patrick. I do think there are a number of issues within the Clarity Act that senators will look at and think about how that's going to impact both agencies and the other component, the SEC. There's a lot of authority there right now. I think it's important and Patrick has very strong feelings and I think that the product was FIT21 which was a great bill in many respects but how much do you want to tie up the agencies? How much power do you need to give to them versus how much power do you want to give to them?
Yeah. So, one of the issues that came up in the panel this morning and you all talked about here is that Congress is going to have to make jurisdictional choices between the SEC and the CFTC. What is a commodity and what is a security? And that's kind of the science of legislating. And there's also an art to legislating. And there's other choices that they're going to have to make. And one of the dimensions they're going to have to make a choice on is how prescriptive the legislation is going to be versus principles-based. So on the one hand, Congress can be very prescriptive and write down the specific things that the agencies must do or things that they cannot do. On the other hand, Congress can lay out broad principles and say regulators, you guys kind of figure this out. And I know you have sort of different views on this. So Patrick, what's your view on what the legislation...
So I think Congress has to be highly specific because we've created agencies. Over time, Congress has gotten I think flabby, weak, they've lacked rigor in actually writing laws because legislating is hard, compromise is hard, and you have to compromise throughout the whole process in order to build a vote total. And it is a wretched process. And it's been a wretched process since you've had two people together to decide on one thing. It is always complicated. And that's before I take shots at the Senate, right? As a House member.
But you have to be specific about the legislative text and congressional intent. That makes the system work better. If Congress can get its act together to be specific enough, the Supreme Court has opined for probably two generations, Congress has gotten into the position of just giving authorities. Ah, we can't really quite figure this out. We have disagreements on the nature of the specifics. We're just going to give it to the agency. They're going to go figure it out. And that is in the discussions I've had on legislating, that is the default position. This is hard. We've worked through this for a couple days. We're not getting anywhere. You're an SEC guy. You're a CFTC guy. You guys just talk. We'll work it out. It's going to be the same conversation except it's different people in the room. So, do the hard work on the front end and be specific.
We tried to do this with FIT21 on defining what is a digital commodity. We had specific weights and measures. It has to be if you're saying you're a digital asset, it really needs to be outside the work of a few, right? You cannot say this thing, well, look, it's digital. It's got all these properties. It's basically a digital representation of a security interest in a company, but we're going to pretend like it's not and we're going to wrap it in crypto. We're great, right? That is like not good. That is like not good. So we had very specific weights and measures in FIT21.
What Chairman Hill has done is gone to the next step which is token classification. These tokens function in different ways. Let's look at how the market has developed and how they function and let's have particular regulation around different types of functionality. A stablecoin is a very different thing than Bitcoin. Those are two obvious examples. But we have this whole set of gradation around what is a digital asset and we need to have regulation that fits for each one of those purposes. So they've gone even more specific in the Clarity Act than what we did in FIT21. That is a net good. If we're not specific with the agencies, the agencies will do what was the underlying statute, I believe.
So, Rostin, you completely agree, right?
100% no. So, markets move 100 miles an hour, government moves significantly less. And the more prescriptive Congress is makes it very difficult for a financial regulator. And I think this can be applied to a lot of different industries, a lot of different agencies, but I'll speak obviously within the context of why we're here. To be able to have something adapt evolve from a markets perspective and then have something essentially chiseled into law makes the regulator's ability to adapt nearly impossible. And then you have your constituents essentially the direct market participants trying to come up with new products trying to innovate and then you're stuck in this catch-22 where you have to comply with Congress or else you'll get sued but you also will then get political pressure for being a laggard.
And then you're in this situation where, and I'm not going to speak sort of as frank as Patrick was but Congress is not legislating as much. You do get into situations where you're negotiating with a lot of different people who have a lot of different vested interests. But I would say this about the agencies when the independent agencies were created, you know, probably about a hundred years ago, they were created to be bipartisan boards, right? So a lot of legal scholars criticize independent agencies and boards for being the sort of quasi fourth branch of government. You sort of are, you're a judge, you're an executive branch, and then you're also a civil enforcement agency. So you have a lot of powers that are otherwise separated into three branches of government.
But I had two Republicans and I had three Democrats. I sat as a Democrat on a Republican board, three Republicans and two Democrats. And one would hope and the goal is ultimately that you're always seeking compromise. And my number one goal as chair was to always find bipartisan votes. Bipartisan votes have sustainability, right? Because with the ebbs and flows of politics, which will always happen, if you have partisan votes, you tend to put that rule or that policy really out on a plank. So, I worked very, very hard with my Republican commissioners to find consensus, which is essentially, as Patrick articulated, the lawmaking process.
And I do think given the pace of markets, given the pace of technology, and given the challenge of rulemaking, and this is just a product of our country, the sophisticated nature of the economy and all that's going on in the world, the idea that Congress is going to have the time and the expertise to write very bespoke surgical rules around trade reporting or definitions of an asset, which could change at any time, or how do you set a limit on a commodity position, I think that goes a little bit too far of where we are in terms of markets, the economy, and technology, and it's best suited for a regulator working with his or her bipartisan colleagues to come up with policy that is based on principles. So, we want to achieve an outcome, but how you achieve that outcome should be more prescriptively written in regulations, not the law.
So, the interesting thing is our conversations about digital assets is it didn't break down as a Democratic regulator with a Republican legislator. It was I'm taking language and Chairman Behnam comes in and says, 'This is what we do with it.' And I'm like, 'Well, I thought we were specific and I thought you were going to do the opposite of that.' It's like, 'No, because we've just read what you've written.' And it's like almost an indictment of like, you showed me your work. You don't know how to do math, right? And these are the fruitful conversations that are not meant to embarrass you, but the real rub with this stuff, which is this is much more flavor and taste than it is ideology on some of this stuff.
Or am I trying to be too generous?
Wait, hold on one sec. Students, go ahead and line up for questions and as soon as we get done with this argument, we're going to have you guys ask some questions. Go ahead and start lining up.
