U.S. Crypto Revolution: CFTC’s Caroline Pham on the New Regulatory Era at KBW2025

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Good morning everyone. I think it's still morning time so I can say that. Thank you so much to Chair Pham, Sheila and Matthew for joining us on stage today for what will be a great panel. It seems strange to be here in Korea with three experts in US crypto policy, but of course we're at a moment where US policy is impacting the rest of the world including Korea, which I I promise we'll get to. But starting off, a very important question for the audience.

Who here knows what the Commodity Futures Trading Commission is? Okay, we've got we've got a few hands and I think we're going to we're going to help explain this in the panel. Um, but the the CFTC has become one of the most important agencies when it comes to regulating crypto, the rise of spot trading, the rise of perps and other assets, uh, and and Chair Pham is at the center of that. Um, but it's also in a strange position because it's normally a five commission body, five commissioner body, that's how it is able to advance policy. And Chair Pham, I I know that you're alone there now and I'm curious how you're able to still impart policy change at the agency while I'll balancing that role of being the sole commissioner there.

Well, I vote. It's very simple and straightforward. So, it's been a real pleasure to be able to serve and it's been a great to be able to advance the president's crypto agenda. We are working to make America the crypto capital of the world and more than that, we are encouraging everybody to come, hire, invest and build in America. I I'm curious because there's obviously been so much advancement out of the CFTC and the SEC and other regulatory agencies in the US to advance crypto policy after it'd been hamstrung in the previous administration.

But you always have to have this balance of advancing innovation and also making sure there's consumer protection. Of course, this is not only a thing in the US, but outside. And I'm curious as you're moving at such warp speed to advance crypto policy, how you balance that need to also make sure there's consumer protection with all these new assets that are available to investors from prediction markets to perps. So, it says this right in our statute. It says that we have a mandate to promote responsible innovation and fair competition.

And as a former compliance executive, making sure that we have safeguards in place for our markets and protections for market participants is always at the forefront of my mind. More than that, I also was staff at the CFTC and I worked on implementing the Dodd-Frank Act and ensuring that we had regulation over the swaps market, which of course had a role to play in the global financial crisis. So, it's something that strikes very home, very close to my heart, and that's why not only did I propose 10 fundamentals for responsible digital asset markets in 2022, I put together the Global Markets Advisory Committee, which Sheila previously served on, and this committee of experts is able to use their hands-on expertise in not only furthering innovation, harnessing blockchain technology, but also understanding what safeguards need to be put in place that we've learned some hard lessons over the last couple years through different cycles of the crypto winter. So, what's really exciting about the President's Working Group on Digital Asset Markets Report, which the CFTC of course is a member of that, it's really the White House's crypto roadmap for the administration. And for the past several years, the Financial Stability Board, IOSCO, international regulators, our counterparts in other jurisdictions, we have all repeated this mantra that digital assets and crypto need to be brought inside the regulatory perimeter.

Well, that is exactly what SEC Chairman Paul Atkins and I are doing. We are bringing digital assets and crypto inside the regulatory perimeter by saying they should be traded on our futures exchanges and our securities exchanges. For a hundred years our futures exchanges and securities exchanges have been at the absolute uh gold standard for safe, efficient markets with investor protection, with deep capital and liquidity formation. So, how better way to harness the strength of America's capital markets and apply it to the digital asset and crypto asset space? And I I want to bring in our other panelists as well.

Matthew, you have a unique position where you used to be a prosecutor at both the Department of Justice and the Securities and Exchange Commission. And alongside this hypergrowth when it comes to establishing new crypto regulation, you've also seen this unprecedented move, especially from the SEC, to drop enforcement cases. And I think that brings up a lot of concerns for consumer protection advocates that it might create this moral hazard situation for companies where they can act in a way they wouldn't before because there's not enforcement actions happening. I'm curious how you view this trend, especially as a former prosecutor. Yeah, I think the trend is profound and I remember on December 20th, 2020, when Ripple and Brad Garlinghouse, my client, the CEO of Ripple, were sued by the SEC, and the SEC was essentially trying to destroy our business and came very close to doing so.

That was actually the Jay Clayton SEC, not the Gensler SEC, and people forget about that. But Ripple was almost a pariah at that time. I think the industry uh didn't immediately rally around it. And then what you saw in the ensuing years was an effort by Gary Gensler to systematically take down the industry, beginning with issuers of digital tokens, and then with market makers, DeFi. So, we've been battling for the last few years in court.

Uh it's been a sea change now, obviously. The SEC has, in an unprecedented way, not only stopped investigations in their tracks involving crypto, at least involving Section 5 or registration violations, the assertion that digital assets are securities, but the SEC has dismissed a number of cases that are in litigation. That is unbelievably rare, and I think it's a recognition by the new administration just how improper and unfair those litigations were. To actually go into active litigations and tell the judges in those cases, we, the SEC, no longer stand by these cases. So, I think for all intents and purposes, the SEC is no longer interested because there isn't sufficient regulatory clarity in going after companies for Section 5 registration violations.

That said, I don't think uh the SEC has laid down its arms completely, nor has the DOJ. And certainly the state attorneys general haven't, nor have private plaintiffs. So, I think there are still guardrails and standards out there. In particular, the SEC has made very clear through uh Peirce, Chair Peirce, that uh of the crypto task force, Commissioner Peirce, that disclosure is still going to be paramount, that there are still going to be investigations and prosecutions of crypto companies that involve fraud. And that to the extent through tokenization or otherwise, there are products out there that the SEC views as securities, the SEC won't hesitate to investigate those products and prosecute where necessary.

So, there's been a massive massive change, but I do think that there are still regulations being enforced, there are still laws being enforced, but I think there's been a recognition at the SEC and other agencies that the way things were being done over the last 4 years was simply unfair and not only had to to stopped, but had to be undone. So, it's not just open season for unfettered ICOs again? It It isn't open season. I think there's going to be rules around ICOs that practice from the SEC ultimately. And then one other thing to keep in mind is no matter what happens the next 3 years, folks should know, and I'm a lawyer, so I got to throw a little bit of cold water, it innovation will move forward.

If there is another administration there's a 5-year statute of limitations and sometimes much longer on conduct. So, it is still important for KYC purposes, for for disclosure purposes, for for people to stay nimble, stay informed about what's going on in the US, take particular precautions because I think we're going to have a good 3 years of innovation. It's unclear what happens after that. Always nice to have some legal advice on a panel. Thank you.

Uh Sheila, you've been following and active in advocating for crypto policy as long as anyone. And I'm curious your view on how this has shifted especially the past few years. And maybe you can just touch on the legislation aspect. I know that we've talked about this a good amount this morning. You have the Genius Act which created a regulatory framework for stablecoins.

Congress is currently debating a market structure bill that would put more rules around concepts like tokenization and how exchanges operate. How have you seen that sea change? So, I think it's important to remember that we've been talking a lot about the United States alone and primarily US builders building within the United States. But it's certainly the case that even in the past 4 or 5 6 10 years, we've seen tremendous innovation from other parts of the world. And other parts of the world were not suffering from a lack of regulatory clarity.

In many jurisdictions, there was quite a bit of clarity actually. And so, it's going to be interesting as to see as the US does promulgate regulations off the back of legislation. Genius Act of course already passed. We're waiting to see what stablecoin regulations issued by Treasury will look like. Market structure has not passed.

There are multiple versions of it that are moving through the Senate, and so we'll have to see what eventually comes down. And then, of course, there'll be time. There's a lapse, right, between the time legislation passes and the time rules are made. Will those be compatible with foreign jurisdictions? I was heartened to see that there was engagement between the UK and the US just this week, actually, or last week, I forget what day we're in, that was looking to be compatible across those two jurisdictions.

So, it's a lot of this remains to be to be seen, and what's going to be interesting is to watch the extent to which you see that comparability, that compatibility that that enables truly global products to be delivered. Now, all that being said, Leo, I think one of the frustrations has been the feeling that what I called at some point the regulatory permafrost in the US, the inability to move legislation that was meaningful forward, the inability to get regulatory rules that were permanent, right, that that established some kind of boundaries of behavior, passed. What did have a a significant impact on how others were thinking about US markets and engaging within them. And what I think is going to be fascinating to see is as stablecoins, which I believe are the jet fuel of the global economy, digital economy, begin to become more prominent, and as we we're we're just at the beginning of this. I think the last panel and others talked about this.

We haven't even begun to see what can be done with stablecoins once there's an environment around them, around US dollar denominated stablecoins, that's going to be, I think, just as much of a push, of a force, as any regulatory posture that comes down around market structure, to be honest. And that regulatory posture is already in the works with Treasury Department. So, we are not currently in the US. I think we've said enough acronyms of US regulatory agencies, and Sheila, you already brought up how the US is working or impacting regulation outside of the country. Chairman Pham, I know that you've been spending a lot of time out of the country going to conferences like this.

I'm curious how you've seen the impact of the US regulatory shift impact how other countries are approaching crypto regulation. It's the number one factor that's impacting how countries are now revisiting their digital asset regulatory frameworks because the US is the largest market in the world for crypto assets. And so it's been very encouraging to address exactly the issue that Sheila highlighted, which is that one of the lessons learned from Dodd-Frank, besides regulatory moats which inhibited startups and entrepreneurs and smaller companies from entering the space, was market fragmentation. Because digital assets are inherently a global market, it's so important that our regulatory framework builds in a cross-border mutual recognition framework, and that's why I've done two things as part of the CFTC's crypto sprint, which we announced on August 1st right after the release of the White House's crypto roadmap. Number one, I addressed a regulation by enforcement issue we had, which impacted not only digital assets but the 700 trillion notional derivatives markets which the CFTC oversees.

I've always said that we were very important agency because not only do we oversee commodity derivatives markets for oil, for aluminum, for lumber, for grain, critical commodities, but also for FX and interest rates, and credit indices. So these things are so critically important. Um this mutual recognition framework, we are reaffirming our foreign board of trade registration framework, which has been around since the 1990s. That is something that we've had for a long time. It clarifies that domestic boards of trade register as DCMs, foreign boards of trade, non-US exchanges, register as for foreign boards of trade.

And so for all those American companies that were forced to go offshore and set up affiliates in Europe, in Asia, in jurisdictions with more regulatory clarity, this is a path for them to come home, to bring those investment dollars, to bring those jobs, and to build their products at home. So, I'm very excited about going and engaging. I was in the UK and gave speeches at Parliament prior to Secretary Bassant and the state visit from President Trump. And then now I'm here, and so it has been really great to put this message out there that America is back and we are open for business. And so, I think it's so interesting to think about the broader political context as well.

So, we're in a moment in American politics where we are seeing a pulling back on multilateralism. And I think you see this is evidenced by immigration posture, by tariffs, by trade, a lot of other things. And and thus far, there seem to be an exemption of sorts for digital assets in the global digital economy. And but I'm going to be very curious to see what the posture looks like because I do think there's a recognition of the importance. I think this is fantastic, by the way, finally, recognition of the tremendous importance of digital assets and of the crypto economy and crypto builders and the innovation space to the American economy.

But in the context of that isolationism that we're seeing increasingly in other policy areas, I'm I'm watching that closely to see will that somehow bleed into this space. And I think in some cases you're seeing maybe hints of some of that posture. So, for example, the requirement that reserves be held in US financial institutions, for example, right? There's a reserve requirement in the GENIUS Act, but that does require engagement with a US financial institution. Now, that could have all kinds of different permutations and possibilities, but it's interesting.

It's interesting. So, there are things like that that I think we have to just be mindful of. There is no question that this is a president and an administration and a Congress, I would say, that is looking to spur American innovation. There's a feeling that especially in the tech sector, the last not just four, honestly, the last decade or so, American innovation has been a little bit stagnating. I think that's a sense that's held um not just by the political establishment in Washington at the current moment.

And so what is done with that is going to be very interesting. I did this Twitter thread back in, I don't know, whatever, '23 or something, that was about um how we lost on semiconductors, on on chips, and how our um sort of blind our being American blind uh awareness or lack of awareness about how critical those elements would prove to industries well beyond chip manufacturing. It's everything from mobility to computers, you know, whatever it was. Uh and I was kind of analogizing that to digital assets and saying crypto is a similar thing. It's critically important that digital assets, especially stablecoins, um are seen as being instrumental to the future of the economy and the global digital economy.

So, like I say, I'm just watching those things in parallel because it's going to be interesting to see how it all plays out. And that's why we're going to win on crypto, because there is a broader Web3 value proposition that we have to think about when we think about the creation of the new internet and of virtual worlds. Matthew, I know that you're you're mostly focused on the US, but I I'm curious being at a law firm, did you see a shift in clients wanting to move outside the US during the last administration? Has there been a sea change in what's happening with companies that you represent or or how you're viewing regulation outside the US? Yeah, there was a significant shift, I think, in the wake of the Ripple prosecution by the SEC and some other early prosecutions for companies to take operations elsewhere.

And in fact, some companies agreed to take platforms uh out of the US expressly as part of their settlement agreements with the federal authorities. So, uh sometimes it was a condition for getting relief under US law. There were also efforts of clients who were overseas or had significant overseas operations to try to insulate themselves from the US regulatory environment because the SEC and other agencies were being extremely aggressive about reaching outside the US, and I think using or perhaps misusing Supreme Court precedent and some other case law to go after conduct that was squarely foreign conduct, but the argument was it had impacts in the US. So, there was a lot of companies that went offshore. Those offshore were taking pains not to be within the SEC's jurisdiction.

We've seen a complete shift. A number of those companies now have more significant US operations. Again, per my earlier remarks, there are still precautions that need to be taken in moving back to the US. There are still some different regulations. There are the states, for example, but I think there's been a lot of talent that's come back on shore of the US thanks to Chair Pham and and others speaking out and the SEC providing at least some preliminary staff guidance of the kinds of practices that the SEC views right now as being appropriate practices.

And hopefully that trend is is going to continue. I want to ask about one of the most fascinating technologies that the CFTC is regulating right now, which is prediction markets, which do touch on crypto because Polymarket, which is one of the biggest prediction markets, is built on crypto rails. Kalshi, which is the biggest US-based one now, is doing more crypto integrations. But since they won the right to be able to do electoral contracts last year, you've seen a huge shift into sports contracts. And there's a lot of litigation happening now at the state level over whether this constitutes betting or whether it's actual event contracts that have some sort of economic value.

And Chair Pham, I'm interested in how you're seeing this play out because it's impacting the agency's supervisory role so much. I mean, how do you balance that role of allowing the proliferation of prediction markets that do offer some sort of hedging the same way that any futures contract would versus allowing the states to still have some autonomy when it comes to regulating betting markets. So, I'm going to ask a question to the audience. What do you all think is the most important commodity? What do you think is going to be the most important commodity in an era of AI and deep fakes and fake news?

It's information. Information is going to be the most valuable commodity if it isn't already. And how do you get information, real information, true information? How do you find out what is real again in this era of AI and deep fakes? Well, markets, the power of markets is the ability to aggregate information.

And that is why blockchain technology can make a lot of sense for an information market because it allows to have a distributed network that pulls in as much liquidity, as many participants as possible to then create distill all that information and express it through a price. The public interest in our markets, which many people don't know because it's obscure and it's in our statute, is that our markets are designed to serve a national public interest for price risk mitigation, price discovery, and price dissemination. And if you think about it, that's what markets like the stock market do every single day. The stock market takes all the information available about a company, the quality of management, its cash flows, balance sheet, business strategy, all of that and distills it into a single price. And that's exactly what information markets do.

And the other thing that's interesting about this topic is that information markets or prediction markets have been around for a really long time. They are legal in many countries around the world like the UK and Australia and Canada. And in the US, we've actually been studying them since the 2000s. In 2008, we put out a really thoughtful concept release that looked at many of the issues that people are still struggling with today. And the first small-scale prediction market, which we authorized, was back in 1996.

So, it's been 30 years of trying to understand how to harness the power of markets in order to better get information that people can then use for price risk mitigation, price discovery, and price dissemination. And I'll just close this piece with another thought. Our markets are rooted in agriculture. The CFTC's jurisdiction was first created in the Grain Futures Act of 1922, I believe. So, what do you think was really important for farmers to understand and to be able to uh mitigate the risk for?

Whether or not it was going to rain. So, weather derivatives are actually some of the original event contracts, the original prediction markets, that the CFTC has always overseen. From rain to parlay bets on kickoffs, I think is the uh the definition of innovation in in financial markets. But, I have a million more questions that I could ask. I I think that's unfortunately all the time that I have, although I see new timer on there.

But, thank you so much to my panelists for taking the time to chat. Uh and I appreciate everybody for listening in.

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