Our second panel is chris brummer, Research Professor director, institute of economic law, and University Law center. Our second witnesses katerina pastore, and columbia law school. Gendler who is professor of the practice of Global Economics and manager. Mit sloan school of management Senior Advisor to the director, Mit Media Lab and codirector of. The next witness will be robert wiseman, president , public citizen, and the final witness will be chief Strategy Officers. Welcome to all of you. Without objection, your written statements will be made part of the record. Each of you will have five minutes to summarize your testimony and with one minute remaining a yellow light will appear. At that time i will ask that you wrap up your testimony so that we can be respectful of both witnesses and Committee Members times. You are recognized for five minutes to present your testimony. Thank you so much. Members of the committee, thank you for inviting me to testify. Im here in my academic capacity and its an honor to be in this committee again. Papers like will be are struggling to understand today have emerged as a common tool in which Digital Asset economies communicate with consumers and investors about new projects and ventures. False promises and emissions that consumers would need before purchasing a consumer asset. The last time i was here to share my views we discussed precisely these challenges. Today we have a twist. Criticisms of white paper disclosures have focused on earlystage cash strapped startups. Rarely have they been directed at a multidirectional Technology Company with resources of technological challenge. This time its different peppered with big promises in detail with the project with risk to purchasers and the Financial System that are not disclosed. Upgrades to the Financial System, this is at a minimum disappointing. There is no mere public rain storming exercise and it said were conditioned for the adoption of a product that facebook wishes to sell to billions of people around the world. They are all the more problematic given security like features of libra coins and possible implications of us security flaws. First, the libra white paper fails to inform an unambiguous terms that they could lose their money. What it suggests and doubles down on the idea that it will always provide stability in terms of the purchasing power of the new currency. That is not necessarily the case. The libra is subject to foreign currency risk, something the white paper does not clearly acknowledge. It could cost money should there be a run on any of the underlying currencies in the basket. Moreover, they could be catalyzed for reasons that have nothing to do with the underlying basket including a hack of calibra or revelations that consumer data have been shared with facebook or other association members. Second, the white paper fails to explain that libra holders will be exposed to counterparty risks should the Investment Strategy proved to be mismanagement mismanaged or poorly executed. Although the goal will be preservation, any money raised from interest earnings ultimately go after operational and developmental expenses and will Fund Dividends to early investors for their initial contributions. As a result it is structured in a way that creates incentives for the Portfolio Manager to accumulate over time higher yielding investments. Finally it fails to disclose how its promise of a secure scalable and reliable blockchain could be compromised by whatever is the weakest link including operating in jurisdictions with qic rules. This is just the tip of the iceberg. With a host of critical questions of selection criteria not to mention how folks are intending to manage potential conflicts of interest. In my written testimony i show how these kinds of issues populate the document and are especially problematic since the offering has security like features including the back among other things that it appears to operate nearly identically to ets. Critically these kinds of omissions are more than just a matter of technicalities. The indications of various ways in which purchasers and everyday people are far from properly informed and not on it proper Playing Field, there are 99 problems in this white paper is one thank you mr. Brummer. Miss pastore you are recognized for five minutes. Thank you very much chairman clay and Ranking Member mchenry. Thank you to other members of the committee and thank you for the ability to examine proposed currency. Im a professor where ive taught for the past 18 years mostly in the field of Corporate Law and finance, and line development. Also, the Law School Center on global legal transformations. Based on my research and an analysis of the paper and related documents that have been released so far, ive come to the following conclusion. First, it is designed to become a new global currency that will complement existing currencies designed as a forprofit currency. It promises to create a seamless global safe and inclusive Payment System based on modern digital technologies. Is labeled a stable coin and as such aims to deliver high liquidity to its customers who shall be able to exchange them against local currency on demand without suffering major cuts. To this end libra is backed by safe assets. The essence of choice are Bank Deposits and liquid debt of repeatable they owe their safety to public mechanisms in the form of deposit insurance and four credits of the issuing. Their profit earning beneficiaries will be free riding on a Public Safety net for which they are not paying and extending the safety net to users around the globe. The main governance architecture resembles currency boards employees employed by countries who use to back there currencies like singapore with the important difference that they shall deliver profits for its beneficiaries. It will be allocated to the members of the Libra Association and or investors which are distinct from libra coins, the holders of the libra and i would suspect in the event of the resolve and see of the reserves there will be no money transferred to the users of calibra. A central note of what will become ecology is the Libra Association based in Geneva Switzerland which will exercise control of the admission of future members, manage the reserve, determine asset eligibility, decide whether to amend the protocol in which it runs, and determine when and how it will emerge from a permissions systems to a permission less system. This concentration of power is unmatched for accountability to anyone. The choice of the structure means that the member of the association will be insulated from liability and accountable only to themselves. It will not be accountable to holders of the coin nor to citizens of countries that create the safe assets used. Facebook plays an essential role in the creation of libra, the first 20 prospective members have been recruited by facebook and given control over the startup phase. Its reasonable to assume that most if not all of the original founding members will be hand picked as would be the Management Team which would be put in place after the first five members only have signed up. Existing Regulatory Frameworks are highly incomplete. It leaves ample room for digital arbitrage. They were not designed to govern Digital Currencies and currently use a casebycase approach to extend reach which is no match for the fastmoving technological change. Libras global reach exacerbates the problems in many associated activities associated with managing activities will be with on beyond the reach of regulators in the United States or any other countries for that matter. The current level of the Regulatory Corporation does not match the versatility of a private actor such as facebook to pick and choose from Legal Systems with laws and regulations that best suits its needs. You are now recognized for five minutes to present oral testimony. Members of the committee, thank you for inviting me here to testify. It is so good to be back with you here again. I began my finance career in the private sector. Leader as a treasury official when i first testified, i was also a witness of the sudden Asian Financial crisis and was later an advisory. After the crisis i served as chair helping reform a 400 trillion swaps market and is now wanted to be a professor of the practice at mit teaching about Digital Currency. These have taught me lessons that i bring to consideration of facebook. First, all of finance has one foundation and its trust, for hundreds of years. Unfortunately for facebook for some unexplained reason they chose to make bold proposals when trust is not in good supply. Second, the labral proposal may seem unprecedented if not just for sheer breadth and scale. We seen this show before. Trust us to revolutionize finance. And run, trust us to set up sophisticated electronic trading. What did we get . Scandals, manipulated electricity markets. Longterm capital management. Trust us to set up a new type of algorithmic hedge fund with Systemic Risk. Libor. Trust us to set up the worlds most relativist relevant interest rate. Manipulated rates on trillions of home mortgages. These offer millions of americans and our personal for me as i lived each one of these in each sector trying to clean up the mess. Third observation. It has already made great strides. Leapfrog, big finance, and dominating chinese payments. Amazon coin, apple pay, and recently apple announced with. Facebook has tried as well with limited success. Critics closed and Facebook Messenger payments closed peer to peer up this month and the pilot has stalled in india. The reserve where the money is needs to be regulated for what it is. If for some reason technically the law does not cover that, then congress can step in and ensure that you can. Regulating the reserve under 49 statement of transmission laws bring tough lessons of shattered backing and just doesnt make sense. There needs to be tight restrictions including prohibiting loans. I was glad to hear that today and regarding custody of funds. Thats what china and kenya did. They said it was very restricted when big tech came in. Second, the manager should be registered as an investment advisor. Third, custody in calibra needs to be tightly regulated ensuring that facebook doesnt use lose or abuse. Its part of the economics. They want to use those coins and need to protect the data by true firewalls and not just customer consent clauses. Fourth, the accounting of the Payment System, the blockchain should adopt payment infrastructure rules consistent with Federal Reserve policies and leslie weaver will have dashiell leslie it will have the same safeguarding against activity. Being registered will not stop the rest of the network. The broad, Global Network is no easy solutions. The trust, so importance to finance, easy to lose, best to verify as members of the republican in democratic side said, and critical to be responsibly regulated. Thank you. Mr. Weissman, you are recognized for five minutes. Thank you very much mdm. Chair for holding this hearing so quickly after the announcement and treating this with the thoughtfulness and care that it deserves. Facebook is not making the proposal because its interested in competing with Western Union. They are making the proposal because it wants to be in the middle of as many transactions that occur across the planet as possible. If they can get all of them, it will take that. Thats a Serious Business that this committee must be paying attention to. Im going to raise three concerns with facebooks proposal to be ameliorated with aggressions but not cured. I want to make a point that follows on what he just said. Facebook is a company to not be trusted. I mean that in two senses. First, facebook has repeatedly, not just repeatedly violated its own privacy policies. Not anything external but they adopted their own policies and violated them not once, not twice, but over and over and over again. Look at the last consent decree. Wait until we see this decree, see the listing. This is a company that cannot be trusted but its worse than that. Even if facebook maintains its promises, they are unilateral, voluntary, and subject to change at any time. Key features of the proposal are completely up for grabs and changed over time. For example, the one to one reserve would make a difference but they could unilaterally alter that commitment. The idea is the money will be invested in stable currencies. It would make a difference but a promise that could be unilaterally be invested. The idea that there would be a firewall between calibra and facebook, unilateral promise that would be invested and youd be foolish to think they would not change that would because theyve changed the Privacy Policy almost every year. Three particular considerations i want to raise. First, the competition policy and monopolistic implications of this proposal. As weve heard immediately upon adoption of calibra, it will be available to 2. 7 billion users around the worlds. It is a that facebook will dominate the market for libra and perhaps all Digital Financial transactions. There may not be a lot of other competitors but we will see facebook immediately extending dominance in social media to dominance in the payment transfer business. The association itself has the makings of a cartel. Theres talk about giving discounts among the members and will be used to advantage those on the outside under the leadership of the dominant member of the cartel, facebook. We have a long tradition separating commerce, that has expressed wisdom and protected us from a lot worse financial crisis. We need to apply those principles going forward. Second, the concerns about Consumer Protection inherent in the proposal, the idea that you will make no interest loans and adopt Foreign Exchange currency risks. In this new ecosystem massive Consumer Protection problems as you have a global privatized currency. What happens when you get those loans . The choice of law became ukrainian law. The third problems, privacy. No reason to believe there will be a separation but even if there is facebook will understand whats going on based on the use of facebook and will gather all this data. Whether or not they do what they say theyre going to do, we elect to see corporate surveillance but only imagined in sciencefiction dystopian models. Its a matter of them monetizing our lives and worsening the algorithmic discrimination already in an increasing problem and leveraging the data to cross competitors. Its a matter of overall less innovation, not more innovation in the Digital Economy and the rest of the worlds economy. Finally, i want to see this committee is flooding the idea of the keep big tech out of finance act which i think is the correct approach going forward. Of this is far too dangerous to permit to proceed. Thats one way to shut it down and we hope this committee will do that. Now you are recognized for five minutes to present your oral testimony. Good afternoon members of the committee. I am the chief Strategy Officer of coin share. A Digital AssetManagement Firm that operates jurisdiction. We managed 800 million in assets on behalf of thousands of investors. Im also here to share insights as a Business Owner and investor, and advocate for and user of crypto currency. Today i would like to discuss crypto currency, namely big coin. To emphasize why it is different than libra, and outline what that means for innovation here in the United States. Bit coin is the bestknown most valuable and best know crypto currency. It is a technology, a network, net worth, and crypto currency. Bit coin as a technology is not regulated. Much like the internet, the network could be considered a public good. However the companies being built are subject to regulations in respective jurisdictions. Ive invested in currencies in over 30 countries. Half have been incorporated in and operated from the United States of america. The United States enjoys a robust Capital Market and boasts a long tracker to track record of a place for innovators can build. Of these companies employ nearly 5000 people in cities like san francisco, charlotte, new york, boulder, austin, atlanta, but also london singapore zerich and berlin. It has reached a point of inevitability. It is inevitable that the ecosystem will continue to grow and contribute to the Digital Economy. The question is where. The approach which has been used in the past is challenging to apply in a Digital World that is not constrained in the past. We are seeing countless imitators which follow some features of but are decidedly not crypto currency. Libra is not a crypto currency. Im not here to talk judgment an