Dr. Emin Gün Sirer testifies before the US House of Representatives Financial Services Committee

The Owl
By and The Owl
Dr. Emin Gün Sirer testifies before the US House of Representatives Financial Services Committee

Dr Emin Gun Sirer, Founder & CEO of Ava Labs, testified on 13 June 2023 before the US House of Representatives, House Financial Services Committee on Fostering responsible growth of blockchain technology.

Watch his 5 minute introductory speech below.

Ahead of his appearance, the Committee published his written testimony which can be read in full below or here

Fostering Responsible Growth Of Blockchain Technology

Testimony of Dr. Emin Gün Sirer Founder & CEO, Ava Labs, Inc.

Before the United States House of Representatives, House Financial Services Committee

Chairman McHenry, Ranking Member Waters, and Members of the Committee.

It is an honor to be here with you today. I thank you for the opportunity to appear before you as a computer scientist to discuss blockchain technology, its innovative uses, why it is impactful to the economy, and how to understand the use cases that blockchain will support. With an understanding of these key concepts, it is possible to develop sensible regulatory frameworks and ensure the technology will thrive in the United States.

There have been several testimonies before this Committee regarding blockchain, but they have been primarily provided by lawyers and business people. To that end, I hope this testimony will provide a helpful overview of blockchain and tokenization from a technology and computer science perspective. I will focus on blockchain’s ability to transform society by making digital services more efficient, reliable and accessible to all.

The collective goal is that the United States should seek to enable the free, safe, and responsible proliferation of blockchain technologies and their many applications so that, as a country, the United States and its citizens can benefit greatly from the economic growth that blockchain technologies will enable.

My Background

I am the founder and CEO of Ava Labs, a software company founded in 2018 that is headquartered in Brooklyn, New York, whose mission is to digitize the world’s assets. Ava Labs is a software company that builds and helps implement technologies on the Avalanche public blockchain and other blockchain ecosystems. We have developed some of the most significant recent technological innovations in blockchain, including the biggest breakthrough in consensus protocols following Bitcoin. Before founding Ava Labs, I was a professor of computer science at Cornell for almost 20 years, advancing the science of blockchains with a focus on improving their scalability, performance, and security. During that time, I consulted with various U.S. government agencies and departments on a range of topics. I have made fundamental contributions to several areas of computer science, including distributed systems, operating systems, and networking, with dozens of peer-reviewed articles (among other things, I am one of the most cited authors in the blockchain space after Satoshi Nakamoto). I hold a National Science Foundation CAREER award and previously served on the DARPA ISAT Committee. I serve as a member of the Commodity Futures Trading Commission’s Technology Advisory Committee. But I am perhaps most proud of having helped write a parody of the blockchain space with John Oliver.

The Big Picture

We are living through a period of unprecedented technological progress and transformation. The computer revolution set this trend in motion, initially with mainframes and later with personal computers. However, these early systems were limited by their "stand-alone architecture," capable only of processing local data and executing local computations. Although they made existing tasks more efficient, they failed to create a multiplier effect due to their lack of network connectivity. 

The emergence of the internet and, subsequently, world wide web marked a pivotal shift from isolated, local computing to global-scale computing. Architecturally, we transitioned from standalone computers to a "client-server architecture," which enabled us to connect to remote services operated by others to leverage their programs and capabilities. This new paradigm gave rise to digital services that catered to the entire world, created millions of jobs, and solidified the U.S.'s position as a global economic leader.

Blockchains represent the next phase in the evolution of networked computer systems. Whereas the client-server systems that power the web today rely on point-to-point technologies to connect clients to servers, blockchains facilitate many-to-many communication over a shared ledger. This allows multiple computers to collaborate, achieve consensus, and act in unison. Blockchain technologies allow us to build shared services in the network. In turn, this enables the development of unique, secure digital assets, more efficient financial services systems, tamper-proof supply chain tracking, digital identity solutions, and transparent voting systems, among many other innovative applications. By harnessing the power of blockchain technology and the digital uniqueness it allows us to create, we can redefine trust, ownership, commerce, recreation, and communications, ultimately transforming how we interact with digital systems and each other.

The implications of this breakthrough are far-reaching. Blockchain technology allows us to create systems that reduce costs, increase efficiencies, and gain more control over our digital lives and the virtual world. Additionally, we can establish new kinds of 2 marketplaces, novel digital goods, and services that empower individuals and communities to foster economic growth and social impact.

The advancements from blockchain technology will result in leaps forward, just like the internet itself, because they will improve the internet itself. This technology creates a new kind of public good, namely, a shared ledger that can be purposed for a wide range of applications. As we enter the era of customizable blockchains and smart contracts, the fine-tuning of this software will further enhance and improve what the technology delivers today while empowering compliance with relevant regulations.

Blockchains and Smart Contracts: Impact Across Applications

Blockchains solve a long-standing challenge in computer science: enabling a diverse set of computers worldwide to reach consensus (agreement) on a piece of data and the larger dataset to which it belongs. While it may appear obscure at first glance, this is a crucial building block for solving complex problems that traditional internet systems struggle to address, such as creating digitally unique assets, tracking their ownership, and safely executing business and other processes. In doing so, this technology does not have to rely on humans or intermediaries for its security properties; in fact, it typically provides strong integrity guarantees even in the presence of (partial) system failures.

Let me be clear: this ability to leverage distributed or decentralized networks is a desirable goal for many reasons that have nothing to do with securities laws, financial services regulation, or the laws and rules governing other areas of commerce, recreation, and communications. Distributed networks are more resilient, secure, auditable, and available for builders. Blockchain builders did not set out to develop the technology to evade laws and rules. We set out to solve computer science problems.

The potential applications for blockchain technology are vast and varied in contrast to the client-server model where many functions are expensive or impossible. Below, I will discuss just some of the key applications and innovations blockchains enable.

Blockchains are evolving rapidly

Blockchain technology has evolved rapidly in the 14 years since Satoshi Nakamoto introduced Bitcoin to the world. The Bitcoin blockchain pioneered a consensus mechanism – the way that the data is agreed upon by participating computers – popularly and inaccurately known as "proof-of-work." Bitcoin has demonstrated to the world that public, permissionless blockchains are possible. The topic of consensus was known in computer science literature as "byzantine fault tolerance" and research into creating such systems had been funded by the National Science Foundation and DARPA, and involved hundreds of academics, myself included, for multiple decades. Bitcoin solved the problem and proved to the world that this technology could create and maintain a digital asset, as well as establish and transfer ownership over it. Bitcoin has remained up and accessible, even as it weathered numerous attacks throughout its 14 years, without a central authority or controller maintaining its health. In contrast, even the best client-server services built by Microsoft, Google, Amazon, and Facebook have experienced numerous outages during the same timeframe.

Computer scientists did not stop there. Subsequent blockchain technologies have expanded this core functionality. Most notably, Ethereum introduced the concept of smart contracts, self-executing programs encoded on blockchains. Smart contracts can facilitate all manner of applications, including currently popular ones like peer-to-peer lending, social networks, digital collectibles such as NFTs and gaming skins, and the tokenization of real-world (traditional) assets on a single chain governed by a uniform set of rules.

The latest breakthrough in blockchain architecture is known as multichain blockchains. In these systems, developers can create chains with custom rule sets, execution environments, and governance regimes tailored to their needs. Not only does this level of customization unlock use cases previously not possible on blockchains with single rule sets, but it also isolates traffic and data into environments purpose-built for a task or application. Examples of these systems include Avalanche and Cosmos, which enable the creation of specialized blockchains, sometimes referred to as subnets or app-chains, that can be compliant by design.

For instance, SK Planet, a company in South Korea, recently created a specialized blockchain on Avalanche that onboarded more than 58,000 fully identified customers in its first few days. Additionally, Ava Labs is working with Wall Street firms to create a specialized institutional blockchain. With a multichain architecture, operators have complete control over who can access the chain, who secures it, what token, if any, is used for transaction fees, and more.

There is a general trend here. Blockchain technology is evolving rapidly and naturally progressing towards making itself more flexible and secure. In other words, it has been through code that many challenging issues have already been addressed.

The lesson from these developments is clear: Policymakers should enunciate clear objectives based on the particular implementation of the technology (that is, the activity it is used for), while leaving the mechanisms of achieving those objectives up to experts to determine. Because we can customize blockchain implementations, it is easier than ever to regulate the implementation rather than the technology, and achieve neutrality of regulation.

Regulation in The Token World

Blockchains are technologies that allow us to build resilient and fault-tolerant applications. They are, in effect, openly programmable platforms that their users can interact with as if they are a public commons. This powerful construct naturally gives rise to many different kinds of applications and, consequently, tokenization, the creation of digital representations of bundles of rights, assets, and other things.

All tokens are not equivalent in their implementation or function – they must be treated differently according to their essential nature. Tokens cannot simply be lumped together under a single set of regulations because they vary so widely in function and features. A good analogy is paper; we regulate the bundle of rights, assets, or things created by the words, numbers and pictures on the page.

Types of tokens include but are not limited to:

  • A real-world asset: A token can be the direct or indirect representation of a traditional asset. For example, one could tokenize land ownership such that each token corresponds to a uniquely identifiable piece of land. In many cases, real-world assets are already regulated, and their digitization into a blockchain format should not necessitate wholesale new regulation.

  • A virtual item: A token can represent a piece of digital art, a collectible, a gaming skin, and more. These can be varied in function and form as well. They can range from simple non-programmable pictures, a common use of NFTs, to complex assets, some used in games, that can encode all sorts of functions and features of the asset directly inside the asset itself.

  • Pay-for-use: Public blockchains constitute shared computing resources that must be allocated efficiently. A token is the perfect mechanism to meter resource consumption and prioritize important activities. Such tokens are sometimes known as "gas tokens." For example, BTC is the gas token of the Bitcoin blockchain, ETH for Ethereum, AVAX for Avalanche, and so on. Without gas or transaction costs, a single user or small group of users could potentially overwhelm the blockchain, similar to a denial of service attack, making the blockchain unusable.

The list above covers expansive categories...

But remains just a snapshot of what is happening and what is possible. I encourage you to review our Owl Explains educational initiative for more information. As a matter of first principles, the determination of the regulatory regime must start and end with the functionality and features of the token, not the technology used to create it. At Ava Labs, we call this sensible token classification.

Let me be clear again: Tokenization was not created to evade laws. It is the natural product of blockchain technology and an improvement that blockchains offer over traditional systems, just like computer databases were an improvement over paper filing cabinets.

In addition to sensible token classification, regulations that pertain to tokens must be devised in a manner that can be enforced at a layer that has access to the necessary information for enforcement. In the same way that we do not expect internet routers to check the verity of content sent on social media applications, we cannot impose a regulatory burden on technology layers that are unaware of the content or operations carried out on-chain. The platforms already provide features, such as lockups and transfer restrictions, that can assist in coding these limitations.

Enhancing Market Efficiency, Transparency, and Oversight

Blockchains and smart contracts can be the foundation of a more transparent and efficient financial system that enables all participants to share a level playing field. This includes regulators, who can have greater visibility than ever before into the actions and activities of all market participants. Privacy remains an important component of any system. Developing these new ways of providing and regulating financial services should incorporate personal privacy. These improvements can only come with the support and collaboration of regulators and policymakers by providing sensible laws and regulations that allow for the responsible growth of the technologies.

How has this played out in the wild? A perfect example is the trustworthiness of exchanges.

Last year saw the failure of several crypto-asset exchanges, most notably FTX. Make no mistake: these failures were not failures of blockchain technology. They were failures of traditional custodians who were supposed to secure user deposits. Not a single major decentralized exchange was affected by a similar failure. Blockchain technology is purpose-built to eliminate this reliance on centralized intermediaries, who can jeopardize user funds, market integrity, and other desired features of a well-functioning system.

In addition to on-chain custody and transacting, a more recent breakthrough known as enclaves enables new marketplaces where code severely constrains what even the owner and operator of the marketplace can do. This innovation can rule out unwanted behaviors like front-running, stop-loss hunting, and breaches of privacy that challenge market integrity. Ava Labs’s own Enclave Markets is at the forefront of this innovation, which we call fully encrypted exchanges.

Another example that points up the benefits of engaging in activities on-chain as opposed to with centralized parties comes in the lending context. Last year saw major failures of lenders and borrowers who conducted their activities off-chain, while the major on-chain lending platforms weathered the stormy markets mostly unscathed. These protocols adeptly navigated liquidations and collateral calls in rapidly falling markets, due to their reliance on over-collateralization and automated systems. While there is no panacea, the evidence so far points to the success of decentralized networks in managing stress conditions much better than centralized counterparties. These results are in line with what blockchain design predicts.

Stablecoins as the Digital Gateway for the U.S. Dollar

Stablecoins, which are predominantly denominated in United States Dollars, are expanding globally because they are a superior way of holding dollars. Stablecoins not only enhance the user experience—by increasing the velocity of capital and reducing the cost of transferring it—but also cater to a growing demand for stablecoin dollars among those facing economic uncertainty and hyperinflation in their local economies.

By transforming the dollar's capacity to retain value into an accessible product outside the U.S., stablecoins help individuals protect their life savings from fluctuations in the value of their local currencies and from being stolen by criminals and other rogue actors.

This potential can be realized with appropriate regulation, which allows for the responsible growth of stablecoins through new technologies and configurations.

Blockchains Can Accelerate Recoveries from Climate Disasters with Insurance

Consider the emerging property insurance crisis catalyzed by more frequent and extreme climate events. State Farm, the largest property insurer in California, announced it will no longer provide insurance due to the risk of wildfires. Insurers in Texas, Florida, Colorado, and Louisiana have felt the same pressure to stop provisioning insurance, increase rates, or find backstops for insolvency.

Who will communities in these states, and in the U.S. as a whole, rely on to insure their homes and economic futures? If the industry consolidates as bankruptcies hit smaller regional insurers, how will that risk be managed?

Using smart contracts and the Avalanche network, Lemonade Foundation is now providing insurance to more than 7,000 farmers who previously only had access to products with unaffordable premiums or delays in payout that had lasting, multi-season impacts. These premiums were not economically feasible for the organization due to the manually-intensive processes now condensed into a single smart contract. As another example, in 2019, the U.S. government completed the accounting for Hurricane Katrina disbursements, a full 14 years after its catastrophic impact in 2005. The delays stemmed partly from the difficulty of achieving agreement among the many stakeholders participating in this process.

In 2012, Superstorm Sandy damaged almost half a million homes and incurred roughly $50B in damages. The same gaps in insurance payouts stifled urgent recovery efforts across the East Coast. Families who had paid their premiums for years were given pennies on the dollar to rebuild their lives. By the time their lawsuits led to action and more financial payouts, the damage had been done, and scars set on these communities. Blockchain-based distributed ledgers can significantly streamline such processes, and our company is collaborating with Deloitte under a FEMA contract to develop and implement this technology.

Supply Chain and Fighting Counterfeiting

Global supply chains are facing challenges relating to the expedited demand for goods and pandemic-driven strains, including our most security-critical infrastructure. When supply chain problems hit, they can be especially problematic, and when there is fraud, the problems are exacerbated. Blockchains and smart contracts can help secure and validate supply chains for various global sectors.

Blockchains can perform supply-chain management to provide a reliable and transparent record of a product's origin and authenticity. The Tracr platform from De Beers has shown how to accomplish this for diamonds, while other deployments have addressed fields ranging from luxury goods to concert tickets. Blockchains can be vital tools to fight the counterfeiting of medical supplies, pharmaceuticals, food products, and consumer technologies that directly affect our communities and your constituents.

Upcoming Technological Improvements

While there have been highly-publicized exploits of smart contracts, the space has significantly matured since its early days, and new technologies stand poised to improve the safety of on-chain assets and applications.

The potential risks relating to smart contract-based systems have centered around flaws in implementation, such as poor coding and negligence in following best practices, rather than fundamental issues inherent to smart contracts or blockchain technology. Just as the internet software stacks were weak in the 1990s, smart contract programming tools are in their infancy.

The space has rapidly evolved to use code audits and other techniques to certify that smart contracts uphold safety standards, giving rise to a burgeoning field of software threat analysis, certification, and verification services. In addition, we are seeing the emergence of automated tools for program verification and model checking to help find bugs that human eyes cannot easily locate. These techniques operate even before programs are deployed to root out bugs before they can affect anyone.

Finally, there are new mechanisms, such as run-time integrity checks, smart contract escape hatches, and automated limits on money flows that operate in real-time to help contain the effects of any unintended errors that might pass through to production. Systems that have employed best practices, such as lending platforms and well-designed bridges, such as the ones Ava Labs has built, have seen billions of dollars pass through their contracts without compromise.

Given my background in academia and research, I am confident that the space will develop even stronger techniques for ensuring the correctness of smart contract software. One of the spillover effects of this activity will be better integrity and safety for all software, including software not related to blockchains.

Technological Competitiveness and Risk of Inaction

As we stand at the precipice of this new era, it is imperative that we nurture and support the development of this revolutionary technology. By doing so, we can unlock its full potential and ensure that the United States remains at the forefront of innovation, propelling the next generation of internet technologies and ushering in great economic growth.

Responsible actors in the blockchain space want sensible laws and regulations that incentivize growth and good behavior, punish bad actors, and elevate the users of blockchain networks. The community stands ready to provide guidance to policymakers to achieve those aims. However, without sensible frameworks and collaboration, there is a clear path to losing technological leadership to other countries.

The United States won the first wave of the internet revolution precisely because it enabled responsible freedom to innovate. The United States must follow the same path of enabling free but responsible growth of blockchain technology while carefully and intelligently classifying and regulating blockchain applications and tokens. Otherwise, there are two critical paths of failure for any regulatory framework.

First, the blockchain platforms themselves become regulated at the protocol layer. This would be the equivalent of regulating internet protocols, which would have doomed information technology and the vibrant internet we have today. Second, the tokens and smart contracts created with blockchains are lumped into homogenous and incompatible categories. This would be the equivalent of regulating a social media application like we regulate a consumer health care application. Instead, tokens and smart contracts must be analyzed case-by-case and regulated carefully based on their function and features.

As we move towards a more digitally-native world, aided by AI, virtual reality, and a work-from-home society, we will have to rely increasingly on digitally-native transfer and programmability of value. Blockchains are the clear technological answer to these needs and are definitively synergistic with the global economy. The addressable market for digitizing the world's assets and transferring value safely across the internet is greater than the sum of all the value of all existing assets. Failure to see the power of blockchain technology – whether due to a lack of understanding or misplaced fears of the technology – will have disastrous consequences. Failure to rapidly provide sensible regulatory frameworks will not only undermine economic growth but also make it easier for bad actors to conduct illicit activities.

Finally, it is essential to remember that just as there are good people committed to public service, there are also good people committed to building technologies to improve lives. By working together, we can lay the foundation for trustworthy, efficient, and self-enforcing systems that serve as the foundation for our modern economy.

Articles

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2025-09-11

Two paths diverged? How the US and EU treat stablecoins

Last time, we explored the similarities and differences between the GENIUS Act’s approach to stablecoins and the latest proposals in the UK. We showed that there were areas of broad alignment, but also some areas of clear difference. The reason for this is the different ambitions each country has for the growth of their stablecoin (and broader digital asset) sectors, set against two very different regulatory systems. In this post we will compare the US framework with the EU’s regulation around stablecoins, which can be found in its Markets in Cryptoassets Regulation (known as MiCA). MiCA covers more than just stablecoins and provides comprehensive crypto-asset regulation for Europe, including regulation of intermediaries (known as crypto-asset service providers or CASPs).  The US does not yet have a comprehensive federal regulatory regime for crypto-assets or the associated intermediaries. In Congress, the House of Representative has passed the CLARITY Act, which would provide such a regime.  However, the Senate has yet to pass legislation on the topic, although the Senate Banking Committee has provided a discussion draft and request for information.  The relevant regulators, the Commodity Futures Trading Commission and the Securities and Exchange Commission, have each started the information gathering process that is a precursor to rule making.  We have submitted proposed frameworks for rulemakings by the CFTC and the SEC to cover intermediaries’ activities with respect to crypto-assets, specifically protocol tokens.  Verdict:  For now, Europe is somewhat ahead of the US in terms of comprehensive intermediary regulation. We expect stablecoins to have implications for payments, banking and commerce more generally, so it seems appropriate that they have their own set of regulations, as is the case in both the US and the EU.  As a quick reminder, on 18 July 2025, President Trump signed the GENIUS Act into law, establishing the first US federal framework for so-called “payment stablecoins” (which include pretty much any existing stablecoin). In the EU, however, MiCA’s stablecoin provisions came into force across all 27 EU member states much earlier, in June 2024. It creates a bespoke regime for stablecoins, which it separates into two types: e-money tokens (EMTs) and asset-referenced tokens (ARTs) depending on what basket of assets the token refers to. Although the two regimes were developed in very different political and economic circumstances, there are - just like with the UK - certain areas of core overlap. But there are also, of course, some notable differences. Let’s unpack it. Scene Setting Both regimes regulate the issuance of stablecoins as well as the issuers and intermediaries who support them. They start from slightly different definitions: in the US, “payment stablecoins” broadly include any fiat-denominated token used for payments, while in the EU, the split is explicit between EMTs (tokens referencing a single fiat currency) and ARTs (tokens referencing multiple currencies or non-fiat assets). Stablecoins linked to other assets are left to other, as yet undefined regulation in the US, but captured as ARTs in the EU. In both frameworks, 1:1 backing of fiat-denominated coins is a core principle, with detailed reserve, disclosure, and redemption requirements.  Verdict: For now, Europe is ahead of the US by recognizing other types of stablecoins beyond fiat-linked. Keeping It In Reserve In the EU, MiCA requires that EMTs be fully backed by assets denominated in the same currency as the reference, held in custody with an authorized credit institution or central bank. Eligible assets are limited to: Cash deposits. These must be at least 30% of reserves held as commercial bank deposits (or 60% if the stablecoin is deemed ‘significant’); Government securities with minimal market and credit risk; and Other highly liquid instruments approved by the EBA. ARTs have similar prudential and governance requirements varied just to reflect that they reference value other than a non-single, non-fiat currency (though to date no ARTs appear to have been issued in the EU). In the US, an issuer’s stablecoins must be backed one-to-one by eligible instruments, such as: US currency, demand deposits or deposits held at Federal Reserve Banks; Treasury bills or bonds with a maturity of 93 days or less; Repo funding secured by T-bills cleared at a registered CCA; Securities issued by registered money market funds; Other liquid federal government assets approved by regulators; and Tokenized versions of eligible instruments. Both jurisdictions prohibit commingling of reserve assets with operational funds. Verdict: Broadly aligned, though the EU mandates more commercial bank deposit-backing and have provision for stablecoins beyond fiat-linked. A Shot At Redemption In the EU, EMT issuers must grant holders the right of redemption at par value, at any time, in fiat currency. Redemption must occur “promptly,” and for free, though MiCA allows some operational flexibility (no fixed T+1 requirement, unlike the UK). For ARTs, redemption rights exist but are subject to additional conditions given the potential volatility of the reference basket. In the US, customers must have a clear, enforceable right to redeem stablecoins for fiat on demand. The GENIUS Act requires issuers to publish a redemption policy promising “timely redemption” with capped and disclosed fees. Verdict: Aligned, though the EU requires redemption to be without fees. What’s The Issue(ance) Under MiCA, only authorized credit institutions (banks) or electronic money institutions may issue EMTs. ARTs can be issued by other regulated entities, but must meet additional governance and capital requirements. Importantly, MiCA applies uniformly across the EU, with no national discretion (so-called ‘EU passporting’).  Foreign issuers can issue EMTs or ARTs in the EU only if they establish an authorized entity within the Union. Foreign-issued stablecoin usage (for stablecoins that would be deemed EMTs under MiCA) are capped at 1 million transactions per day and 200 million EUR value for stablecoins not pegged to an EU-currency. The GENIUS Act’s general rule is that only U.S.-regulated issuers can directly issue stablecoins to U.S. users, with a narrow exception for foreign issuers from “comparable” jurisdictions, provided they register with the OCC and maintain reserves in U.S. institutions.   Unlike Europe, which does not allow member states to regulate any type of crypto-asset, the GENIUS Act allows for stablecoin issuers to choose either federal or state regulation, so long as the dollar amount of stablecoins issued remains below $10 billion.  The law sets the minimum standards for both federal and state regulation, but state regulators may impose greater standards and in any event have the ability to set the detailed requirements of the regulations.  In Europe, those details are handled by MiCA. Verdict: Not aligned. The US provides a possible route for foreign issuers (although future rules from the regulators might narrow the realistic opportunity for foreign issuers in the US). The EU requires a fully in-scope local entity for EU issuance or limits on usage. Additionally, the US allows for state regulation, while MiCA prohibits member states from regulating on matters that are within its scope. No Interest In That Both the GENIUS Act and MiCA prohibit stablecoin issuers from paying interest or yield directly tied to holding or using the token. MiCA is explicit that EMTs cannot generate returns, to preserve their similarity to e-money. ARTs are also prohibited from offering yield unless linked to other activities approved by regulators. Verdict: Aligned. What About Implementation? In the EU, MiCA was written into law in 2023, with the stablecoin provisions (Titles III and IV) applying from June 2024. However, supervisory enforcement only builds up gradually: By 2025, all EMT and ART issuers must be authorized. Existing operators had a limited grandfathering period but must transition to full compliance by end-2025. The EBA and ESMA are expected to refine technical standards through 2026. The GENIUS Act becomes effective the earlier of January 18, 2027, or 120 days after implementing regulations are finalized. Proposed rules are due by mid-2026, with full compliance required by early 2027. By mid-2028, all payment stablecoins offered in the U.S. must be issued by permitted entities. Verdict: Not yet aligned. The EU regime has already started, with stablecoin rules already live, whereas the US regime will not fully be in force until 2027–2028. The View From The Nest While both jurisdictions have moved to bring stablecoin activity within the regulatory perimeter, their paths diverge in meaningful ways. The EU’s MiCA regime cements a highly harmonized framework across 27 member states, with tighter prudential and governance requirements. This regime is also notably protective of EU monetary sovereignty and seeks to limit the ability of non-EU currencies to circulate inside the EU. This implies a fundamental global fragmentation of the stablecoin market.  The US approach is more focused on payment system stability and creating federal-state coherence around issuers, but leaves significant discretion for regulators in implementation. In terms of international stablecoin usage within the US, the GENIUS Act is (perhaps unsurprisingly given the global role of the US dollar) more relaxed. Whether this divergence ultimately fosters beneficial jurisdictional competition, interoperability or simply friction and fragmentation will depend on how these rules are enforced, and how responsive the two jurisdictions are to a rapidly evolving market. There is still scope for both regimes to treat each other as equivalent for practical purposes and so create interoperability between the two jurisdictions. But it is just as possible that questions of monetary sovereignty and infrastructure independence will lead to persistent fragmentation between the two great Transatlantic markets. -----– We intend to host some local invite-only events in various locations around the world in the coming months to learn more about how the experts are thinking about stablecoins and their impacts on payments, banking and the overall digital economy. We will share the key themes from each event with everyone.

The Owl
By and The Owl
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2025-09-08

Crypto Summer Heats Up as Senate Kicks Off Digital Asset Market Structure

A New Beginning It’s been almost ten years since lawmakers started circling the big question: how do you regulate an industry that’s redefining what assets even are? Congress’s efforts to pass digital asset legislation finally broke through with the historic enactment of the GENIUS Act (stablecoins) and the passage of the CLARITY Act (market structure) in the House of Representatives—passing 294-134, with 78 Democrats voting in favor.  The Senate is now considering market structure, with two competing bills vying for attention: the House’s CLARITY Act and the Senate Banking Committee’s discussion draft of the Responsible Financial Innovation Act of 2025 (RFIA), made public in late July by Senate Banking Committee Chairman Tim Scott, Sen. Cynthia Lummis (Chair of the Subcommittee on Digital Assets), Sen. Bill Hagerty (the primary force behind the GENIUS Act), and Sen. Bernie Moreno. Along with the draft RFIA, the group released a wide‑ranging Request for Information (RFI), seeking feedback on many topics including definitions of terms, issuer disclosures, trading venue obligations, custody, insolvency, illicit finance, bank activities, trading by insiders, and federal preemption of state laws.  Since the Senate Banking Committee has oversight authority over the Securities and Exchange Commission (SEC) but not the Commodity Futures Trading Commission (CFTC), the Senate Agriculture Committee will develop its own language to be combined with the RFIA to address the areas that will be within the CFTC’s remit.  Comparing RFIA and CLARITY  Here’s where things get technical and interesting: the starting point for each bill is very different because of the way each defines the assets that will be regulated. CLARITY calls the relevant asset a “digital commodity,” which is defined as “a digital asset that is intrinsically linked to a blockchain system, and the value of which is derived from or is reasonably expected to be derived from the use of the blockchain system (emphasis added).” RFIA uses the term “ancillary asset,” which is defined as “an intangible, commercially fungible asset, including a digital commodity, that is offered, sold, or otherwise distributed to a person in connection with the purchase and sale of a security through an arrangement that constitutes an investment contract (emphasis added)” and does not include an asset that provides certain financial rights. Ancillary asset seems the much broader definition because it encompasses any asset that is the subject of an investment contract, while digital commodity is limited to assets that are native to blockchain networks. Yes, this part is dense, but definitions like this decide what and who gets regulated, and how. Despite this vast difference, the two bills proceed to specify regulatory regimes that are fairly similar. Both focus on the existence of an investment contract as the trigger for the obligations and regulatory structure. They impose disclosure and other obligations on those who distribute the assets when they are the subject of an investment contract and give jurisdiction to the SEC on that basis. They also place limits on insider selling and take up other issues related to the assets. Both give jurisdiction to the SEC over the issuer or originator who conducts the distribution through an investment contract and jurisdiction over secondary markets to the CFTC (as noted above, Senate Agriculture must weigh in on those requirements). Both require rulemakings from the SEC and CFTC to accommodate these new requirements, with CLARITY specifying many new types of intermediaries under the CFTC’s purview and associated rulemakings. RFIA and CLARITY diverge in one more significant way. CLARITY imposes a “mature blockchain” requirement while RFIA does not. Mature blockchain is the key to allowing distributors to have lighter burdens, insiders to trade more freely, and escaping other requirements. While RFIA utilizes a “common control” concept to place or relieve limits on insider trading, it does not require a mature blockchain for any purposes. Still, the rapid pace of blockchain innovation may create practical challenges for designing and implementing an effective and lasting regulatory framework. Prescriptive definitions embedded in legislation may produce unintended downstream consequences that constrain innovation as the industry and applications of blockchain technology evolve. In other words, when Congress locks in a definition like “mature blockchain,” it risks boxing out some current innovators as well as tomorrow’s new innovations. And where the concept does not have a hard cut-over, the model risks inhibiting use cases as an asset shifts between SEC and CFTC oversight, creating uncertainty for all stakeholders and driving up legal and compliance costs. By contrast, a technology‑neutral, principles‑based approach, consistent with the SEC and CFTC submissions below, would maintain effective oversight while affording innovators the flexibility and regulatory certainty necessary to experiment and BUILD. Informing Regulation  While Congress is hard at work on legislation, we should not forget that the SEC and the CFTC have the ability to promulgate regulations. At the CFTC, Acting Chairman Pham has commenced a “crypto sprint” soliciting comments on how the agency might regulate crypto trading and other activities, first through a targeted request and then through a broader request aimed at addressing the recommendations from the President’s Working Group report. We submitted a comment letter in response to the first request, suggesting a framework by which the CFTC could allow its registered intermediaries to open the markets for protocol tokens, those tokens that are integral to the functioning of a protocol, whether blockchain, smart contract or otherwise.  Comments on the second request are due October 20, 2025. Over at the SEC, its Crypto Task Force has been actively soliciting information since February 21, 2025, with Commissioner Peirce’s speech laying out 48 topics on which to provide feedback. We submitted two comment letters. On April 23, 2025, we discussed token classification, decentralization, and the need to ensure that infrastructure providers are not confused with intermediaries. On May 27, 2025, we discussed the “nature of the activity” test as the means by which to evaluate whether an activity constituted intermediary or infrastructure services.   SEC Chairman Atkins gave an important speech on July 31, 2025, about American leadership in crypto and providing a high-level roadmap for the SEC to help achieve that goal. We responded with a comment letter on September 3, 2025 outlining a framework for the SEC to regulate pre-functionality offers and sales of protocol tokens as well as proposing rulemakings to allow SEC-regulated intermediaries to conduct trading and related activities in protocol tokens. With both agencies focused on developing regulations, through rulemaking, exemptive relief or otherwise, we expect to see initial output from both this fall. Stay Active and Engaged As Congress deliberates on how to implement an enduring and flexible approach to digital asset regulation and the SEC and CFTC invite comment on regulatory proposals, now is the time to educate, inform and advocate. Ava Labs and Avalanche Policy Alliance (our new name for Owl Explains!)  are proud to participate in many of the ongoing initiatives and advise on how the United States can maintain its global competitiveness in digital assets through public policy and regulation. For more information, see our resources page that includes explainers, articles, comment letters, and issue-specific material on DeFi, tokenization of assets, and stablecoins. Or give us a hoot! 

The Owl
By and The Owl
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2025-08-07

Bridging the Atlantic: How the UK and US are Shaping the Future of Stablecoins

Bridging the Atlantic: How the UK and US are Shaping the Future of Stablecoins 2025 - affectionately known to us Owls as the Year of the Stablecoin - has certainly lived up to expectations in the policy stakes.  In the US, President Trump signed the long awaited the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act into law on July 18, establishing the first federal framework for so-called “payment stablecoins” (seemingly just about any stablecoin). At the same time, the FCA has recently closed its consultation on a regulatory framework for stablecoins in the UK. With these two major jurisdictions finalizing their regulatory frameworks for fiat-backed stablecoins, understanding the differences between their approaches provides insights not just for issuers, but for global market design and those thinking broadly about the potential impacts of a world full of stablecoins in multiple currencies. We briefly compare and contrast key aspects of the two regimes, and suggest what this means in practice. Scene Setting  Both regimes would regulate the issuance of stablecoins and the issuers and intermediaries who support them.  They start with similar definitions of stablecoins:  essentially those fiat-denominated stablecoins that can be used in payments.  Stablecoins linked to other assets are left to other regulation.  We Owls have explained how regulation of these other assets might work, including to the SEC Crypto Task Force and in response to an FCA consultation. One key element mandated by the GENIUS Act and the FCA’s consultation is the requirement that issuers maintain 1:1 backing of their stablecoins with high-quality, liquid reserve assets (essentially cash and cash equivalents). Both approaches also set enforceable standards for who may issue a stablecoin, redemption rights, disclosures, and custody of the backing assets.  Let’s dig a bit into the details, comparing and contrasting the two approaches. Keeping It In Reserve In the US, an issuer’s stablecoins must be backed up one-to-one by eligible instruments, such as: US currency, demand deposits or deposits held at Federal Reserve Banks; Treasury bills or bonds with a maturity of 93 days or less; Funding secured through a repurchase agreement backed by T-bills and cleared at a registered Central Clearing Agency (CCA); Securities issued by a registered investment company or other money market fund; Any similarly liquid federal government-issued assets approved by the issuer’s regulators; and Tokenized versions of eligible instruments that comply with applicable laws. In the UK, an issuer will only be able to hold “core backing assets” for the one-to-one backing, comprised of:  short term deposits, short-term government debt instruments; longer term government debt instruments that mature in over one year; units in a Public Debt CNAV Money Market Fund (PDCNAV MMF); and assets, rights or money held as a counterparty to a repurchase agreements or a reverse repurchase agreements. Both jurisdictions require that the reserves be segregated and not commingled with the issuer’s operational funds.  Verdict: aligned. A Shot At Redemption In the US, customers must have a clear, enforceable right to redeem stablecoins for the reference currency (e.g., U.S. dollars) on demand. The GENIUS Act requires issuers to publish a redemption policy that promises “timely redemption” of stablecoins for fiat, with any fees disclosed in plain language and capped (fees can only be changed with seven days’ notice). Regulators are expected to formalize operational expectations in the required implementing rulemakings. In the UK, the FCA has proposed that any stablecoin holder can redeem directly with the issuer in one business day. It proposes requiring that any fees charged for redemption be commensurate with the operational costs incurred for executing redemption. In all cases fees must not exceed the value of the stablecoins being redeemed, or pass on costs and losses arising from the sale of assets in the backing asset pool. Verdict: to be determined. The FCA’s T+1 proposal is stringent, and more so than other regimes, such as the Markets in Crypto Assets regulation in the EU. Permitting a more flexible redemption timeline could give the US a competitive edge, although the consumer aspect may also be important. What’s The Issue(ance) The GENIUS Act’s general rule is that only U.S.-regulated issuers can directly issue stablecoins to U.S. users, but it creates a possible exception for foreign issuers that meet strict criteria and obtain a form of U.S. approval. Foreign issuers may issue stablecoins in the U.S., and digital asset service providers may offer or sell such issuer’s payment stablecoin, if the foreign issuer: Is subject to regulation and supervision by a foreign regulator that the U.S. Treasury determines is “comparable” to the regulatory and supervisory regime under GENIUS, a determination which Treasury has 210 days to make; Is registered with the OCC; Holds reserves in a U.S. financial institution sufficient to meet liquidity demands of U.S. customers; and The foreign jurisdiction in which the issuer is based is not subject to comprehensive economic sanctions.  In the UK, anyone wishing to issue a qualifying stablecoin must be authorised and regulated by the FCA. However, issuers based overseas, even if they are issuing a GBP stablecoin and/or issuing to UK customers, do not require FCA authorisation, unless they are also conducting another UK-regulated activity. While this allows for a theoretical route for UK customers to access unregulated overseas stablecoins, in practice most UK customers will be relying on intermediaries like a trading platform, which would be in scope of local UK regulation.  Verdict: not aligned.  The UK may have a competitive advantage by allowing foreign issuers more flexibility. No Interest In That Both the GENIUS Act and the UK FCA do not allow stablecoin issuers to pay their holders any form of interest or yield (whether in the form of cash, tokens or other consideration) if it is solely related to holding, retention or use of the coins.  Both are silent on other types of programs such as rebates to intermediaries that might be passed on to consumers. In both instances, it seems that the boundary between prohibited yield and permissible rewards tied to other activity may be subject to future rulemaking and regulatory interpretation. Verdict: aligned What About Implementation? The GENIUS Act becomes effective on the earlier of 18 months after enactment - that is, January 18, 2027, or 120 days after the primary federal payment stablecoin regulators (e.g. Federal Reserve, OCC, FDIC, SEC/CFTC) issue final implementing regulations. Additionally, within 1 year of enactment (i.e. by July 18, 2026), Primary Federal payment stablecoin regulators, The Secretary of the Treasury, and each state payment stablecoin regulator must issue proposed and final rules via notice-and-comment. Three years after enactment (by July 18, 2028) it becomes unlawful for any digital-asset service provider (e.g., exchanges, custodial wallets) to offer or sell payment stablecoins in the US unless those stablecoins are issued by a permitted payment stablecoin issuer under the Act. So what does that actually mean for firms? Market participants have roughly 12 months (until mid‑2026) to prepare for proposed regulatory standards. Full compliance requirements kick in by early 2027, unless regulators finalize rules sooner. Digital-asset platforms must ensure that all payment stablecoins offered in the U.S. are issued by authorized entities by mid‑2028. Up until then, platforms may continue to offer and sell stablecoins that have not been issued by permitted stablecoin issuers. In the UK, assuming the FCA sticks to its 2024 Roadmap, firms can expect final rules published in the first half of 2026, with the regime switching on, at the earliest, late 2026. However, there is likely to be a phased implementation period, with firms who have an existing MLR registration or an existing FSMA authorization treated differently to firms seeking FCA authorization for the first time. If the UK is nimble and decisive, it could match the US’s timeline of full compliance by early 2027. However, given the level of commitment and pace of legislation as demonstrated by GENIUS, it seems inevitable that the UK is going to land its regime after the US.   The View From The Nest While both jurisdictions are moving swiftly to bring stablecoin activity within the regulatory perimeter, their paths diverge in meaningful ways. The UK’s rules reflect a strong focus on financial services oversight and bank-level safeguards, while the US approach is more explicitly centered on payment system stability and state–federal alignment around issuer regulation. Whether this divergence ultimately fosters jurisdictional competition, interoperability or friction will depend on how these rules are implemented - and how responsive they remain to a market still evolving at speed. We intend to host some local invite-only events in various locations around the world in the coming months to learn more about how the experts are thinking about stablecoins and their impacts on payments, banking and the overall digital economy.  We will share the key themes from each event with everyone.

The Owl
By and The Owl