The head of the Commodity Futures Trading Commission views most stablecoins as commodities, barring new law that could change their classification.
“Not withstanding that, they are a commodity, and we have to police that market without a clear direction from Congress that they’re some other type of asset,” CFTC Chair Rostin Behnam told reporters Wednesday, following an appearance before the Senate Agriculture Committee. “Based on the cases that we’ve brought around stablecoins, I think that there’s a strong legal argument that USDC and other similar stablecoins would be commodities,” unless Congress tells regulators otherwise.
Behnam singled out a specific enforcement action that the CFTC took against stablecoin issuer Tether and its sibling exchange BitFinex in 2021.
That interpretation appears to put the CFTC and Securities and Exchange Commission on different pages on another digital asset-related topic. Last month the SEC notified Paxos that its U.S.-pegged stablecoin with Binance, BUSD, was an unregistered security. Paxos announced that it had stopped minting BUSD tokens after receiving the SEC notice.
“As far as I know, with fiat-backed stablecoins, there’s no expectation of profit and return to the stablecoin holder,” Behnam said. But he made it clear that he was not sure how algorithmic stablecoins could be characterized.
Differing on ether
Behnam and SEC Chair Gary Gensler already seem to have different views of ether, the second-largest cryptocurrency by market capitalization. Gensler has hinted that he views ether as a security, along with nearly every non-bitcoin digital asset.
“We have regulated ether derivatives,” Behnam told reporters. “It’s not a coincidence that those futures were listed on CFTC markets. We did the analysis, the listing exchange did the legal analysis, and the analysis led to the conclusion that ether is a commodity, and I’ve been pretty consistent with that in the past.”
The SEC has not formally declared whether ether is a non-security asset, but in 2018 the then-SEC Director of Corporation Finance Bill Hinman said he viewed ether as the Ethereum network at that point as “decentralized” to the extent that, “current offers and sales of Ether are not securities transactions.” Hinman has since returned to private practice and Gensler took leadership of the agency in 2021.
Asked whether SEC action around ether could lead to complications for the CFTC, Behnam responded, “We feel confident that our legal analysis is correct and ether futures have been listed, I think for several years now.”
Calling on Congress
Behnam, when pressed on whether the current regulatory approach to digital assets in the U.S. is working, once again emphasized the need for comprehensive regulatory legislation from Congress.
“There’s a gap in regulation and we need to comprehensively regulate it because enforcement alone is not going to solve the problem, the risks, the customer protection issues around crypto,” Behnam said. “And as our markets have proven, as our regulations have proven over many, many decades, comprehensive regulation can prevent fraud, can prevent manipulation, and can stabilize markets and ultimately protect customers.”
The CFTC chair added that such legislation could aid regulators in cracking down on activity by offshore crypto firms that violate U.S. law, as FTX allegedly did.
Citing similar authority for the CFTC in international swap markets that interact with U.S. customers, Behnam told The Block, “my thought is legislation should probably consider a similar policy around what is the significant nexus to U.S. customers.”
Work on Senate bill continues
Behnam’s call for comprehensive legislation seems to continue to resonate with senators. Michigan Sen. Debbie Stabenow, the Democratic chair of the Agriculture Committee, has pledged to continue working on the issue after a bill she and top committee Republican Sen. John Boozman of Arkansas co-authored with input from Behnam stalled last year.
The bill, known as the Digital Commodities Consumer Protection Act, divided industry advocates and was strongly supported by former FTX CEO Sam Bankman-Fried. The high-profile collapse of FTX led to further examination of that support.
That bill would have granted the CFTC more direct power over crypto exchanges and spot markets, as the CFTC can only proactively regulate commodity derivatives and pursue fraud and market manipulation through enforcement. Comprehensive stablecoins legislation drafted by current House Financial Services Committee Chair Patrick McHenry, R-N.C., and now Ranking Member Maxine Waters, D-Calif., would have created a new framework around stablecoins, but talks around the bill stalled over objections from the Treasury Department.
During Wednesday’s Senate Agriculture Committee hearing, Sen. Roger Marshall, R-Kan., a crypto skeptic, asked Behnam what his level of concern over digital assets is on a scale of 1-10. Behnam put his at “7.5.”
Senate Banking Committee Chair Sherrod Brown, D-Ohio, who also sits on the Agriculture Committee, quipped that his was “8.2,” while Marshall added that his was “12.”
The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.