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- [00:00]
Timothy Massad
I think it's totally wrong for him to have launched two meme coins two days before inauguration. It was just a money grab. It was a pump and dump scheme. It's a conflict of interest and it's going to create ongoing conflicts of interest because people that might want to curry favor with the administration, whether those are companies or foreign countries, might buy those meme coins in order to try to do so.
- [00:30]
Jen
Our next guest gave testimony at the Senate Banking Committee subcommittee hearing called Exploring Bipartisan Legislative Frameworks for Digital Assets. Joining me now is research fellow and director of the Digital Assets Policy Project at the Harvard Kennedy School and former CFTC Chairman Timothy Massad. Welcome to the show, Chairman.
- [00:48]
Timothy Massad
Thank you for having me, Jen.
- [00:49]
Jen
President Trump, I want to talk to you a little bit about his involvement in the crypto space. He, of course, launched Trump a meme coin on the Solana blockchain. His family's involved in World Liberty Financial, which is a defi project. What are your thoughts on the President of the United States getting involved in these types of crypto projects while at the helm?
- [01:11]
Timothy Massad
I think it's brazen corruption. I think it's terrible. I think it's totally wrong for him to have launched two meme coins two days before inauguration. It was just a money grab. It was a pump and dump scheme. It's a conflict of interest. And it's going to create ongoing conflicts of interest because people that might want to curry favor with the administration, whether those are companies or foreign countries, might buy those meme coins in order to try to do so. I mean, look, I think most people know this, that they're a bad idea and it's wrong. It's just that, you know, I was testifying, as you mentioned the other day, no Republican has the courage to say that. I mean, look, Joe Biden wouldn't have known how to do this, okay? But if he had done it, every single Republican on Capitol Hill would have been probably calling for his impeachment.
- [02:06]
Jen
That's a really interesting comment that you have there, and I want to just dig into it a little bit further. I mean, what does this, I guess, tell you about the future for this administration? What does this signal?
- [02:18]
Timothy Massad
It signals that we're going to see, I think, a lot of corruption and grift, unfortunately. And I think that plays into the bitcoin reserve also. Again, I think, you know, you could view this as simply favoring those people who already own these assets. And obviously, the crypto industry contributed a lot to the president's campaign as well as to his Inauguration. So I'm, I'm very worried about the level of corruption that we might see.
- [02:47]
Jen
Hmm. You know, a lot of folks in the crypto industry really have celebrated this administration for their maybe forward thinking way when it comes to digital assets. I'm curious to just hear your thoughts. I want to dive into some of your comments during your testimony about specific, specific bills, specific legislator. But what would you say to the industry who has really kind of celebrated this administration's support of the technology?
- [03:18]
Timothy Massad
Well, look, I think they're overplaying their hand. At least I hope they're overplaying their hand and that eventually this is going to come back around. I mean, right now they're pushing for as much as they could get. Step back a moment. The real question here is how are we going to create a framework for responsible innovation of this technology as opposed to just more speculative activity? And you know, I'm very worried as to the path we're on. I think blockchain technology, tokenization technology could be very useful in lots of ways. But what I fear may happen here is we're just going to create a framework that doesn't regulate it well, that doesn't put in good protections for investors as well as for financial stability. And that's simply going to encourage more of the kinds of speculative activity and activity that doesn't really have a social utility that we've seen a lot of to date.
- [04:26]
Jen
Let's talk about some of the frameworks that we can maybe expect in the near future. I know that in your recent testimony you said that you think that stablecoin legislation should be dealt with further first before any kind of market structure legislation. Talk me through that. I mean, for anyone who's been following what's going on in this industry, stablecoin legislation, it felt like we were gonna get it, and then it just gets pulled back and then it feels like we're gonna get it and then we go backwards. And now it feels like we're gonna get stablecoin legislation this year. Talk to me about the importance of this before any other crypto related legislation.
- [04:59]
Timothy Massad
Well, look, stablecoins are the most useful application of digital asset technology to date. They've been used mostly for crypto trading, but they could be very important as a general payment mechanism. We need a good regulatory framework to encourage that and then, you know, let the market decide just how useful these things are. I was hopeful we could have gotten this done during the Biden administration. I think looking back, maybe they missed some opportunities there, but I think there is Some. There is growing bipartisan support for this. I'm encouraged by that. I just hope that we can put in a framework that does have some good protections, because, you know, what we don't want is for a stablecoin issuer to sort of not put in good prudential protections on reserves and have capital and so forth and then have something blow up that would be very bad for this technology and for this industry.
- [06:03]
Jen
Are you looking at, you know, legislation? Let's take mica, for example, in. In Europe. Should the US Be looking at what's already being done in jurisdictions around the world as they're looking at stablecoin legislation, or what are your thoughts there?
- [06:18]
Timothy Massad
Absolutely. I think looking at mica, looking at what Singapore and Japan have done, looking at what the uk, the United Kingdom is considering, there's a lot of good features in those, in those frameworks. Now, I don't agree with everything they've done, but I think those are really good things to look at. I've encouraged people, you know, in my testimony, I encouraged people to do that. Look, I think there's a few things you want to make sure you get right. One is prudential requirements, full reserves, some measure of capital liquidity, other risk management standards. We've got to deal with the risk that these are used for illicit activity, for financial crime and evasion of sanctions. We need to allocate sort of federal and state responsibilities appropriately here. And, you know, we need some sort of insolvency resolution scheme, because what you don't want is a stablecoin issuer to go bankrupt and then have that be treated under general bankruptcy rules, which is just not. They're not appropriate for, you know, large financial institutions. So these are some of the things I've suggested in my testimony.
- [07:31]
Jen
Tim, you said you don't agree with everything that's been done in other jurisdictions. What are some of those elements you don't agree with?
- [07:38]
Timothy Massad
Well, I think, you know, we'd have to sort of go through really line by line. I mean, they may be a little strong on kind of some of the, you know, the. The leverage issues there. I've got to look at exactly where they've landed on capital. But I think, you know, there's a lot of things in those measures which are very good. I mean, they have capital and liquidity requirements, they have disclosure requirements. Micah prohibits the payment of interest, which I think is a good thing to do, at least, you know, for now, as we're getting used to this technology, because otherwise it starts to look too Much like an investment vehicle rather than a payment mechanism. Japan has some great features. I think Japan has thought hard about the anti money laundering risks and you know, has required stablecoin issuers to aggressively monitor all transactions and be prepared to to freeze and seize assets. So again, I think there's a lot we can learn from all of these frameworks.
- [08:43]
Jen
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- [09:31]
Timothy Massad
Well, I think it's harder to get it right. You've got to decide this jurisdictional line between securities and commodities, between the SEC and the cftc. And the proposals that have gotten the most attention to date I think are flawed. I think the fit 21 act, which was passed by the House, relies on a very, very complicated test that has three prongs. One is decentralization. One is who owns the asset and then the other is sort of how it was acquired. It's a hard test to apply. I think the decentralization concept is not really the right one to use. So look, what I've said is you've now got leadership at the SEC and the CFTC who want to really figure out what the policy should be here. Let's let them at least run with this a little while and see what they come up with. Alternatively, I've argued, and Jay Clayton, former SEC Chair, joined me in arguing this a while back, that Congress should just mandate that the SEC and the CFTC formulate some joint rules here. I'm just very worried about Congress trying to rewrite the securities laws because our securities laws have served us very, very well. Our securities markets are the envy of the world. And some of the proposals that have been made I think would lead to undermining our securities laws by creating sort of inadvertent consequences, exceptions that are too broad ways to get around the securities laws. Those are the Things I'm worried about. So let's put stablecoin legislation in place. We'll learn a lot from that. Let's let the regulatory agencies work on some of these market structure issues and then maybe come back in a little while and see what Congress needs to do.
- [11:40]
Jen
Talk to me a little bit more about that because in the past years we've heard, you know, the SEC and the CFTC really say that Congress should take action here. Now you're saying that maybe under this new administration, under a friendlier administration, that this could be different. Are there any risks here? Could, could this present gaps that could lead to, you know, bad actors exploiting some kind of oversight?
- [12:08]
Timothy Massad
Oh, well, sure. I mean, I'm not saying that the SEC and the CFTC can deal with everything. I mean, look, meme coins are a perfect example, right? Because if you say that, well, those really aren't securities, but should they be treated as commodities? And if you don't, you know, have the CFTC regulate them and it doesn't, as we know, have the power right now to regulate the spot market, what do you do about those? You know, and I'm not saying people shouldn't be allowed to invest in them. I just think, you know, there should be, there should be some guard rails, maybe some better disclosure or at least people should really be on notice that, look, there's no disclosure here, there is no consumer protection whatever. But sure, I mean, there may be gaps, there may be problems. We don't have a federal regulator of the spot market for digital assets that aren't securities. The challenge has been, yeah, but how do you define the scope of that without undermining the securities laws? And that's the part I've been worried about. And that's why I've suggested some ways that I thought we could do that without rewriting the securities laws that have to do with, you know, basically saying the CFTC would have jurisdiction over the spot market. And you define that by saying it's any platform that trades Bitcoin or ether. And then you'd say its rules shall apply to everything traded on that platform. But we'd still allow the SEC to say, hey, that one over there, that's a security that can't be traded on this CFTC regulated platform. That's. I went through that quickly. Happy to go into it in more detail, but that would be a way to at least put in some investor protection quickly. And again, as the SEC and the CFTC refine their thinking on these things, we can, you know, revisit that and improve on it.
- [14:05]
Jen
You know, there's this, there was this question that was presented a lot over the last four years, and it was, can the SEC and the CFTC really work together? I think the landscape has probably changed a little bit. It seems like they are very much willing to work together under their new acting chairs. But I want to get your perspective there. I mean, the solution that you're presenting. Do you think that these two agencies can really work together to get something meaningful done?
- [14:28]
Timothy Massad
Well, they can, but it does depend on the attitudes of the, of the chairs and the chair's willingness to really make that work. And certainly it will help if Congress says, hey, SEC and cftc, we want you to do this. So I'm fine with Congress mandating that the chair, two agencies work together, but, you know, I worked very well with the SEC during my tenure. We can look back at other periods. The Shad Johnson Accord is another example, dates back a while. So it can be done, but you've got to have people with, you know, the right attitude. I would hope that Paul Atkins and Brian Quintenz, if they're confirmed, would have that attitude.
- [15:10]
Jen
Now, Tim, we do got to wrap up, but I want to get your perspective here on the SEC dropping several lawsuits against crypto, crypto firms like Coinbase. What does this tell you about how the SEC might be thinking?
- [15:23]
Timothy Massad
Well, I'm concerned about it because I do think, you know, without going into specifics of any one case, I think in some of those cases they had good arguments that something was a security. Now the real question is where. What is this signal about what, where the SEC is going, if they're going to come out with some sort of reasonable guidance or policy statement on what is a security, you know, well, then that'll be something for all of us to look at. Hopefully they'll take public comments on that. So I would say I'm, I'm concerned because I think there were, you know, valid allegations, at least in some of those cases. And I would have liked to have seen them litigated. And, you know, frankly, the SEC won a lot of cases on what is a security in this area. But, you know, I'm willing to say, all right, let's let the agencies come up with some proposals and we'll see what those look like.
- [16:26]
Jen
Are there any specific cases you were concerned about that you're willing to talk about today?
- [16:31]
Timothy Massad
Well, I'd rather not get into the specifics of any one particular case, but I would just say that, look, a lot of those cases had to do with whether something was a security. And I think the SEC made some very good arguments. The issues hadn't been fully litigated. So, you know, I'm not reaching a conclusion. But it does concern me again that they're dropping lots of cases. And you know, I hope again that they come out with a proposal as to how they would draw this line in the near future. And I hope it's a proposal that on which they invite public comment.
- [17:18]
Jen
And Tim, just before we let you go, I gotta ask you, if you were still at the cftc, what would your top priority be?
- [17:26]
Timothy Massad
Well, this would certainly be up, way up there. Way, way up there. I mean, look, the challenge for the CFTC is it's a small agency and it has, I think, a budget that's much too small for the things it needs to do. And while it needs to focus on this area, you know, it needs to also regulate the clearing houses and trading markets where commodity futures of the traditional kinds are traded and make sure our, you know, commodity futures markets continue to operate well for all the people that use to hedge exposure or for price discovery. So, you know, that's a real challenge. I hope Congress provides enough money to the CFTC if it's going to ever give it more responsibilities in this area.
- [18:15]
Jen
Tim, thanks so much for chatting with me today.
- [18:18]
Timothy Massad
It's a pleasure.