Lisa Blunt Rochester: 'Real People Get Hurt' By Lack Of Crypto Regulation

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During a Senate Banking Committee hearing on Wednesday, Sen. Lisa Blunt Rochester(D-DE) asked Professor of Corporate Law Richard Painter about the consequences of deregulating cryptocurrency.

Transcript

00:00Senator Blunt, Rochester. Thank you, Mr. Chairman, and thank you to the witnesses.

00:06I really welcome this hearing and the opportunity for a serious sustained engagement in digital

00:13asset market structure. This is enormously complex and could fundamentally reshape

00:21the bones of our economy. We've already seen what happens when digital finance grows without

00:26guardrails. The collapse of FTX, Terra Luna and Celsius wiped out billions in consumer savings

00:34and exposed glaring regulatory gaps. When regulation lags innovation, real people get hurt.

00:41At a time of rising prices and growing wealth inequality, I'm sure that we can all agree

00:48that the last thing we need is to rush or have a poorly designed market structure bill. And at the

00:54same time, I strongly believe in innovation. That's why I joined Senators Moreno and Sheehee to

01:00introduce the Bipartisan Deploying American Blockchains Act. And I support a bipartisan,

01:07thoughtful, transparent, and inclusive process, especially for legislation that could shape

01:13the future of U.S. capital markets. My first question is for you, Mr. Painter. What are the

01:20risks if Congress moves forward too quickly in legislating without broad input and clear

01:26understanding of market consequences? And how do we ensure that this process produces a bipartisan

01:34framework that can stand the test of time? The risk is that we repeat the experience of regulating the

01:39banks in the 1920s and the depression that followed, 10 years of depression. The risk is that we repeat

01:47what happened in 2008 when campaign contributions poured into Congress from the securities-based swap

01:54industry elsewhere in the financial services industry. And we had decades of deregulation.

02:00The economy collapsed. Millions of American families losing their homes, people unemployed. We've been

02:07through this again and again. And this Congress needs to get it right this time and carefully read this

02:13bill and listen to witnesses, including the witnesses who might not disagree. And instead of the personal

02:19attacks that I've experienced today, some dignity from this Senate, care in drafting this bill and

02:25thinking about the American people you represent, we do not want another economic collapse caused by

02:32deregulation of the financial services sector. And I want to ask you all, do you understand the bill?

02:39Have you listened to all sides? And are you willing to allow the regulators to exercise, use their

02:45expertise to watch what's going on in this sector, as Chairman Massad has suggested that you should?

02:53Please, we don't want to go through those experiences again.

02:56Thank you, Mr. Painter. You show why this is so vital that we get this right, because it will touch all of us.

03:04Mr. Massad, some proposals would let crypto companies decide for themselves which rules apply

03:11and which regulator they'd answer to. And that sounds a lot like the businesses picking their own

03:18cop on the beat, so to speak. How should Congress design a system that applies the rules fairly

03:24and earns the public's trust?

03:26Mr. Well, I think Congress should think in terms of principles, not trying to write detailed rules,

03:33because I think those can quickly become obsolete. I think number two, Congress does need to fill the

03:39gap in regulation that we've talked about with respect to the use of this technology for things that

03:45aren't securities. But, you know, to your point about the problems here, I mean, the problem with a

03:53lot of the proposals is that they try to write detailed rules that I don't think are going to

03:59provide the clarity and I think will provide a lot of opportunities for simply evasion of their

04:05intent. I respect the goals. The goal is clarity. We all want that. But I think you've got to be very

04:12careful about how you achieve that.

04:14Some people talk about regulatory standards for centralized systems, that they're inappropriate

04:20for crypto because it's inherently decentralized. But many of these protocols are run by centralized

04:28teams that control governance, the incentives and even the code. So how should Congress decide when a

04:34so-called decentralized protocol acts more like a centralized financial intermediary and regulate it as

04:41such? I think I think the principle Congress should have is just because it's decentralized doesn't

04:46mean it's free of regulation. Regulation may be different. But for example, if we had a decentralized

04:52protocol that became the primary market for trading treasury securities, we would not say, oh, because it's

05:00a decentralized protocol, we don't need to worry about regulation. So I think we may need different rules,

05:06but we still need rules. Thank you so much. I yield back.

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