Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
Ep 42: US Rep Warren Davidson
43 Plays1 day ago
Congressman Warren Davidson (R-OH-08) shares insights on token classification, self-custody, and bipartisan blockchain policy. Tune in for a candid conversation about crypto innovation and legislative reform in the United States.
Recommended
Transcript
Introduction to OWL Explains Hootenanny
00:00:06
Speaker
Hello and welcome to this OWL Explains Hootenanny, our podcast series where you can wise up on blockchain and web3 as we talk to the people seeking to build a better internet. OWL Explains is powered by Avalabs, a blockchain software company and participant in the avalanche ecosystem.
Meet the Speakers
00:00:24
Speaker
My name is Silvia Sanchez, project manager of OWL Explains and with that I'll hand it over to today's amazing speakers.
00:00:33
Speaker
Good afternoon, everybody. This is Scott Mason, Senior Policy Advisor with Holland & Knight, working with AVA.
Davidson's Congressional Focus on Digital Assets
00:00:40
Speaker
And I will explain on the podcast today, we have Congressman Warren Davidson from Ohio, Republican. ah Congressman, thanks very, very much for your time. Congratulations on your recent re-election to the House. You'll be serving your sixth term, I think, come January. um And the last couple of years you've been on the Financial Services Committee,
00:01:02
Speaker
And not only that, but also co-chairman of the digital asset subcommittee. So that's incredibly interesting to our audience
Manufacturing and Trade Challenges
00:01:10
Speaker
today. What sort of drove you to get into interested in in digital assets and crypto and blockchain technology? Yeah, Scott, thanks for talking with you today. And you know just glad to be out of election season and on to policymaking. And really excited about the prospects in the next Congress. But in particular, you look at the digital asset space, I think we've got a a clear departure from the path we've been on. And so, um you know, look forward to look forward to this next Congress. When you look at how did I get into this space in the first place, you know, before I was in Congress, I was in manufacturing and a lot of manufacturing inherently involves trade. So I would send international wire transfer payments and I would talk to people that over time became friends on the other end. And like, why haven't you shipped my stuff? And they're like, well, I've received your payment. I'm like, no, here's the wire instructions. Like,
00:02:00
Speaker
Well, I believe you sent it, but ah my bank says, I don't have it. and No, your bank has it. We checked it. Here's the record. like Well, the bank hasn't released it to me yet. And you find all this friction that goes on between not just banks in the two countries, but governments in the two countries, and Swift in Belgium. And you're like, wow, this is unnecessarily tedious. And so I started really having an interest, like, how does money have a more efficient way to move?
00:02:27
Speaker
And then the 809 financial crisis happened, and it kind of lost my way navigating manufacturing survival in America for a while.
Bitcoin Beginnings in 2012
00:02:36
Speaker
And I got onto Bitcoin about 2012, and I felt like I was late in 2012.
00:02:42
Speaker
When I got to Congress, Bitcoin wasn't even $1,000 per Bitcoin, and I think it's crossed over 93 briefly right now, 93,000 per Bitcoin. so ah Nevertheless, you know there's still some pretty big skeptics, but that's how I got into the digital asset space.
00:02:58
Speaker
You want to talk about some of the, I mean, you've got a number of pieces of legislation that you've sponsored and co-sponsored over the course of the last, you know, five,
Legislation for Digital Asset Clarity
00:03:05
Speaker
six years. Do you want to highlight any of those just to kick things off? Well, the first major piece of legislation that I think was drafted is we we had a conference, ah you know, in 2017, you had the initial coin offering market and things were blowing up there and, you know, a lot of really good ideas out of it. But unfortunately, they were diluted because there were a bunch of just what seemed to be overt pump and dump scams that were muddy in the waters for everybody. And I thought as a new guy, well, we should be able to pass a law and provide clarity and you know make it so that if you're here to do honest work, you can actually have access to our capital markets. But just like any other stock, if you want to run a pump and dump scam, you're going to run into problems and probably go to jail.
00:03:45
Speaker
and so um I couldn't really get a good hearing on that topic in 17. So as 18 went on, ah we had a gathering ah from across the industry. And that led to the token taxonomy act. And that's still really one of the core issues is a bright line test that's more clear than the Howie test.
Self-Custody Advocacy
00:04:05
Speaker
Howie's kind of in the eye of the beholder. ah you know As I say, like a Jackson Pollock painting, it's not exactly clear. but You know, here we want it to be bright line so that no matter where you're standing, whether you're at the SEC, the CFTC in industry and government, it's very clear on this side of it, you're you're a security and on that side of it, you're not a security.
00:04:26
Speaker
And another piece of legislation ah that I've been passionate about is self custody. So a lot of folks have kind of reluctantly realized they're not going to be able to kill all digital assets despite their desire to do so. And they're they're settling for well maybe we can just keep it so that it's account based.
00:04:46
Speaker
um Because then it can be regulated. Somebody that the government regulates and monitors and surveils and essentially deputizes to do that with you, um they they feel more comfortable with that. But digital assets are designed to eliminate all those intermediaries. So if you're really going to get rid of all the friction points that kind of drove me to have interest in the space in the first place, you have to be able to own it and have custody of it yourself like cash.
00:05:13
Speaker
and um And so that, I think, is really one of the core distinctions in the space is people say they support the space, but they don't support self-custody. How can you have decentralized finance without the decentralized part? And so I think that's really one of the big wins that hopefully we can lock in in the next administration. administration Right.
Introducing the FIT21 Act
00:05:32
Speaker
So since we're still in 2024, and we've got a lame duck session sort of between us and Christmas, um earlier this year, the Congress, the House, passed the Financial Innovation and Technology for the 21st Century Act, fit 21, by a pretty significant bipartisan margin. I mean, I think it had over 70 Democrats vote for the bill, and it came out of committee in ah in a bipartisan way.
00:05:57
Speaker
um ah you know How do you see that impacting the crypto and blockchain industry in the United States? And does that address any of the issues that you talk about in token taxonomy or self custody? Yeah, so that bill does exactly what we tried to do with token taxonomy. It builds a bigger framework around it.
00:06:18
Speaker
ah than than what we envision, but it really is a way to create some market structure around things that that aren't deemed securities. Now, it doesn't comprehensively say, well, what if I am trying to create a security? um But it's it's it's got a pretty good amount of clarity if you're not trying to create a security, um how it's going to be ah dealt with in a regulatory environment. And you're right, it was 71 Democrats that got on board with that. It was a big deal. But nevertheless, it's an issue that unites Republicans. It did divide Democrats. And for that reason, um you know, Sherrod Brown, who was the Senate banking chairman, Elizabeth Warren, very hostile to this whole space. So there was no path to get through committee in the Senate.
00:07:04
Speaker
Now, with the new change in leadership, not just in the White House, but in the Senate and Senate banking, ah this clearly
Year-End Legislation and Stablecoin Challenges
00:07:11
Speaker
has a path. So we might see small tweaks to um things that we've gotten from feedback from industry and you know colleagues, and including colleagues in the Senate, to be able to small modifications for fit 21 as it passed the house and will be reintroduced hopefully very shortly after the start of the next congress and then have a path through the senate so i feel optimistic this is something that like i say republicans are pretty united behind and so with majorities in the house and senate this is something i think we can put on the president's desk early
00:07:42
Speaker
So given the outcome of the November elections um and year-end issues, including, of course, the appropriations process, ah potential farm bill extension, ah potential consideration, maybe a fit 21, although I agree with you, it probably does better in the next Congress than it will in the next month. um There's also, you know, Chairman McHenry, of course, is retiring as well.
00:08:06
Speaker
um Chair Stabenow on the Senate side is retiring as chair chairperson of the Agriculture Committee. i Is there any year-end opportunity to to use year-end legislation to tag some of these issues into even something as simple as perhaps stablecoin legislation?
Corporate Transparency Act Concerns
00:08:26
Speaker
Yeah, I think that we're still pretty far apart on what the Democrats want out of stablecoin legislation and what Republicans want. um So I don't anticipate there being any real breakthroughs. um you know i in In the entire space, probably some minor agreement on outbound investments, probably the most likely change in in financial services. i mean One of the things I would love to see ended at the end of the year is you know the Corporate Transparency Act has a reporting requirement that really It goes to all companies, but it it it hits digital assets in ah in a way. um And we want to try to deal with the Corporate Transparency Act. There's a difference that breaks mostly on party party lines there, but it's but it's been very tedious to to implement for FinCEN. It's not clear the Biden administration is really comfortable with the product they have either. ah And it'd be great to see some delay or change to that.
Trump Administration's Crypto Stance
00:09:24
Speaker
So given the election outcomes and Republican House and the Republican Senate, as you mentioned, a change in the attitude of Trump 2 versus Trump 1, which was fairly skeptical of the digital asset and crypto community, um is ah is is market structure reform and and fit 21-like legislation, is that part of the 100-day plan? Or you know what's sort of that what's the future look like, say, the first six to six months of 2025?
00:09:53
Speaker
Well, if you look at this space, it was certainly a big part of Trump building his momentum and growing his coalition. So if you saw, you know, this summer ah really, you know, going into the convention and ah very aggressively coming out of the convention, you know, digital asset space, fintech firms broadly.
Future of Crypto Regulation
00:10:10
Speaker
very much embraced President Trump and just said, look, we're done talking to Democrats. And part of that momentum shift was the vote um on Saab 121, which was an accounting rule that Gensler imposed on the economy and particularly hits digital assets hard. um But on on the Fit 21 bill, and you know Democrats wouldn't move anything. And so the industry broadly just embraced um the trump and the The Trump campaign and rejected the Harris campaign, you know they tried to say, oh, there's a new day for crypto or digital assets. But those meetings completely broke down. ah So you know I think this will have to feature prominently in the Trump administration. But the real indicator at terms of the pace and rate and timing will come out of who does he pick for Treasury Secretary? Who does he pick for the chairman of the SEC?
00:11:08
Speaker
Yeah, and given that oversight, obviously, I think we could expect significant change and diversion from the enforcement by regulation or regulation by enforcement policies of Chairman Gensler.
Bank Regulators and Resistance
00:11:20
Speaker
Yeah, I mean, you you're i I'm very confident you will see it into regulation by enforcement.
00:11:25
Speaker
and you know what i'm not confident of who's going to be the next chairman of the scc uh and or chairwoman as the case may be so uh we'll see and you know treasury will will certainly have an impact but you know the other thing is bank regulators have been kind of nasty on this and you know we we really haven't done an adequate job of exposing operation choke point uh 2.0 3.0 6.0 whatever version it is but the way that they're using regulators to choke off banks and brought more broadly money service businesses and really kill the ability for people to even touch some of the assets in this space. And the Federal Reserve has been a little recalcitrant in that respect. The FDIC still got Marty Gruenberg there, who is supposed to have resigned by now. um And so you look at the personnel as policy kind of outcome. you know When are we going to see some of these shifts? And I think a lot of it's going to come with the naming of key personnel to the positions.
Confidence in U.S. Crypto Market
00:12:24
Speaker
Do you think i mean in the in the past several years you know under the Biden administration and an aggressive SEC, we've seen you know dozens upon dozens of ah digital asset blockchain related companies leave the United States? um And I think now you know the industry may see it as an opportunity to come home.
00:12:43
Speaker
I believe the United States is the best place in the world to do business. Do you think we'll start to see that in Q1, Q2, or will it take passage of FIT21-like market structure reform to give them that confidence? Well, I think the confidence is already there in the markets. You see, in the markets, really embracing the change um you know with the outcome of the election. You see you know real movement in this space, um not just on Bitcoin, but on other assets in the space. So there's a lot of optimism.
00:13:11
Speaker
um But yeah, the way to punctuate that is to say that not only do we have the world's biggest capital markets, we have the world's best capital markets, and that extends to fintech firms because the lack of clarity for this space has driven lots of capital offshore, and we should you know see that spigot turn the other way. And I'm optimistic that we're going to do it.
00:13:32
Speaker
You mentioned chokepoint 2.0, 4.0, 6.0, whatever we're on now.
Access Issues for Crypto Industry
00:13:37
Speaker
um And access to banking has been an issue ah for a lot of digital asset crypto blockchain companies. um One of the other issues that's out there in the committee and been debated to a significant extent has been safe banking.
00:13:52
Speaker
that would that that deals with banking of cannabis ah company monies. The Safe Banking Act would would prohibit federal banking regulators from penalizing the banks for providing services to legitimate cannabis-related businesses. but you know Do you see an opportunity for the crypto world to get some of those same protections? Yeah, I'm certainly hopeful that we can do that. and and You know, the challenge on safe banking has been twofold. There are some Republicans, this is an issue that if framed properly, does divide Republicans, if framed improperly, it it deeply divides Republicans. And the this is what happened. Historically, Democrats moved a relatively clean version of safe banking through the House. um And then the Senate would either take no action or they would load it up with things that, you know, forgive every kind of crime in the world if it involved drugs.
00:14:51
Speaker
um And it was designed to kill the bill in the Senate by saying they're for the bill. um In the House, the problem's been, um Republicans historically don't want to do anything to say, drug use is okay. And you're like, well, we're just trying to let people have a bank account and get a mortgage, you know, and let their corporation do business. I mean, in Ohio, you know, we've got companies like Scott's that sell fertilizer, and you've got government agencies that want to de-bank them.
00:15:19
Speaker
because somebody bought their fertilizer and fertilized some crop that they don't you know trace it. And you're like, no, we sell fertilizer. And you know we don't really go check everything people use it on. And this is the idiocy of of of current bank regulation. And it seems like a layup to at least get the banking part done. So if you want to have the fight about whether it should or shouldn't be legal, whatever you're talking about there, marijuana the most broadly,
00:15:46
Speaker
have the fight, but don't go on the back end and try to backdoor make it illegal with the banking system. and I think that's the principle that if we keep it narrowly framed that way, we can get Republicans to move this. I do feel confident that either Chairman Barr or Chairman Hill, ah whomever prevails in that, and not to discredit any of the other people that are seeking it, whomever is the chairman, I feel pretty optimistic that we're going to see a path through House financial services on this bill, even though Republicans haven't been uniformly supportive of it.
Blockchain in Government Services
00:16:20
Speaker
um So let's talk about blockchains for a second. um In the private sector, the blockchain has recently been adapted adopted by automobile companies, car salesmen, dealerships, housing and real estate records, property records. um How do you see blockchain technology being integrated into the government?
00:16:41
Speaker
government services. You know, what opportunities there, what challenges, um you know, with Elon Musk and Vivek Ramaswamy teaming up on government efficiency, um you know, the Department of Agriculture, for instance, maintains a record on foreign land sales.
00:16:58
Speaker
by using 46,000 PDFs. That's not exactly technologically efficient. So ah you know looking at things like that, I mean, is there an opportunity for blockchain technology to be adopted into the end into the government services process?
AVA's Project with FEMA
00:17:12
Speaker
Oh, there's absolutely. And I mean, one of the ones that I like pointing out is you know the Department of Defense has never successfully passed an audit.
00:17:19
Speaker
and know Certainly, no time in recent memory have they passed an audit. and If you were a publicly traded firm ah with a roughly trillion dollar market cap and you failed an audit, i mean you'd be delisted and the directors would probably face jail time. right i mean This would be really a big deal ah for something that the the size of the US Department of Defense couldn't pass an audit. and If you put their funding At least the public funding, we have some classified funding. But if you put the public funding on a public blockchain, ah you would you and ah yeah it'd be impossible almost impossible to not pass an audit. right So there are things like that with the way that the Office of Management of Budget you know dispenses funds, how the public spending is done. We'll still have sort of a ah black budget.
00:18:07
Speaker
And some people want ah to to keep essentially all of it in the dark. And the reality is we should be very transparent with the public monies. And if you look at some of the questions we've had about um money that we gave, I was opposed to giving this money to Ukraine, but one of the problems with it has not been very auditable. So I think on just the accounting standards alone, ah you could do a lot. But when you look at anything that you want to have a chain of custody on, whether that's supply chain,
00:18:37
Speaker
ah risk, money risk, title and property ownership, ah you could you could definitely see you know blockchain being integrated into the approach to deal with it.
00:18:49
Speaker
Well, I think it's a great example. I don't know if you're aware, but AVA has actually created a blockchain working with Deloitte and FEMA. And you know the FEMA, we're about to you know pass some significant supplemental legislation for disaster recovery in wake of the recent hurricanes that hit the South so hard. It would be interesting to see if some of those monies were required to be tracked and transparent on chain.
00:19:13
Speaker
Yeah, that'll be a great project, be a great demonstration of the capability. And you know I feel optimistic that it'll indicate and this is maybe a smarter way to do a lot of things. Yeah. So one of the Congressional Blockchain Caucus focuses, if you will, for the past several years was to put a position in the White House focused on crypto and blockchain.
Proposed White House Position for Digital Assets
00:19:33
Speaker
The Biden administration didn't do that.
00:19:35
Speaker
Do you think you could encourage the Trump administration to create that position, maybe under the ah Office of Science and Tech Policy, but somebody in the White House that's actually focused on ah digital asset and crypto policies? Yeah, I'd be happy to be a champion for that. I mean, I think that that makes sense. And one of the things that should be right adjacent to it is artificial intelligence. you know The House will wrap up the artificial intelligence report.
00:20:01
Speaker
ah Soon, Jay Obernolte is the chairman of that, but we really had some folks who were um equal to the task. A lot of times you don't have all of the skill set ah in elected officials to deal with some of the real challenging, particularly the technical challenges. Jay is one of the people that really does have the kind of private sector experience to confront that. And we had some people that were good compliments to it that were part of the committee.
00:20:26
Speaker
And French Hill led up the financial services component of it, but with a very collaborative ah set of hearings and you know gathering fact finding to be able to put into the report. um But you know if all we do is write reports, you know those get filed away somewhere, and you know historians will archive them. Maybe somebody will write a book and reference it or something. But nothing seems to happen. For it to happen, you really need personnel. And you know I really feel like you know, setting up the right structure in the in the executive branch is the key to get some of this stuff implemented. Another area of the world that in in this world anyway, it's gotten a lot of attention has been central bank digital currencies.
Opposition to Central Bank Digital Currencies
00:21:06
Speaker
Obviously, some strong feelings on both sides. You want to talk about your efforts and interest in that space and where you think it may go from here in a Trump administration.
00:21:14
Speaker
Well, I'm incredibly opposed to central bank digital currency. ah To me, it is a complete corruption of money and and makes it a tool that is going to be used as a ah means of coercion control and surveillance. ah And that's exactly how China is using it in their own country as they're implementing it. they've implemented integrated it with a digital ID and a social credit score. And you have some of the big champions of this in in in the United States like Elizabeth Warren and some members of my you know financial services committee in the house.
00:21:49
Speaker
um And we had a bipartisan trip to Europe here in October um that yeah had three members from three Republicans, three Democrats that sat in in meetings with the Bank of England, the European Central Bank, the Bank of International Settlement. And all these folks are working on some version of central bank digital currency. And my question is,
00:22:10
Speaker
Have you had demand from the public for this? What do the regular citizens feel about this? And there is no demand for it. And they're like, no, no, but it's for their own good. And this is the kind of system that will be imposed on folks. ah There's no organic demand for it because it doesn't solve the problems that citizens want solved. it I've equated it to like, for Star Wars fans, a movie or made into movies, you know, there's a Death Star that can destroy whole planets and, um you know, why would we let them even build it, let alone turn on the laser that can destroy the planets?
00:22:47
Speaker
In the case here, you've got central banks all over the world working to build central bank digital currencies. And we've tried in the house to ban central bank digital currency. We don't want you to design it. We don't want you to develop it. We certainly don't want it built. And we absolutely don't want it turned on. And ah that's not something that's shared throughout the G20, for example. so um The Trump administration has made it very clear that they're opposed to central bank central bank digital currency.
Taxation and Legislative Challenges
00:23:16
Speaker
In fact, President Trump um put it into the Republican Party platform. And so hopefully it's something that all Republicans embrace. In May, we got a vote on banning central bank digital currency in the House, and all Republicans agreed we should do that. and But we only got two Democrats. And I will say in my district,
00:23:33
Speaker
It's pretty bipartisan, ah so hopefully Democrats' support for this grows and at least gets you know roughly half of Democrats to support it, like Fit 21. um One of the big issues for next year, of course, is the expiration of the Tax Cut and Jobs Act, um the the the tax reform bill that was passed originally by a Republican Congress and signed by President Trump in 2017. Taxation of digital assets remains a pretty complex issue. um Have you had any conversations with your colleagues on the Ways and Means Committee or thoughts for them to consider when it comes to taxation of digital assets?
00:24:09
Speaker
Yeah, I mean, we tried, I call it the Portman Ambush, because an Ohio senator, former senator now, Rob Portman, ah led this infrastructure ah bill. And one of the pays fors was a tax on digital assets that they said was going to take but bring in like $28 billion dollars in revenue.
00:24:27
Speaker
But it it is a kind of willfully designed to either prevent digital assets from even being able to function ah or just completely ignorant of how they work. So they have forms like 1050i that you have to report everything on both sides of a transaction as if it's cash. So anything more than $25,000, you have to collect you know social security number, tax ID, you know all kinds of information about who why it was done and everything else, essentially. And there's no real way to do that if you're operating a node on a on a on a true blockchain, proof of work in particular, um but you know proof of stake, any of this stuff. They had to issue a clarifying thing from Treasury to say, no, no that's not really what it means. Well, that's what the text says. So we have to fix that um just to get sanity.
00:25:23
Speaker
And then we should provide some level of clarity to say, you know, if you're moving from an account based system to self custody or you're moving from one account system to another account system or you're moving out of self custody into um into third party custody or something like that or an account based system, well, that isn't a capital gain. And so you shouldn't have to pay capital gains. Some people want to ban capital gains on digital assets altogether. And for something to really truly function as a payment system,
00:25:57
Speaker
um You really do need something that isn't truly taxed if you're going to yeah use it as a means of payment and a means of exchange. So I think we'll have a robust debate on that, but I feel optimistic we can at least gut the kind of failed logic of the infrastructure bill and get some clarity back on that. Congressman, you've been incredibly generous with your time.
Advancing Market Structure and Privacy Concerns
00:26:18
Speaker
or Are there any other legislative initiatives or or sort of what are your goals in this space in 2025?
00:26:25
Speaker
I think you laid out a couple of them. you know One of the big ones in digital assets is to get a market structure bill. I would like to go a little further than FIT21, so I think that a lot of securities will be tokenized, and there'll be a tokenized version of all sorts of securities, a tokenized market for a lot of those things, ah in particular, debt instruments. ah you know There are just a lot of intermediaries, and if you can disintermediate things, there's going to be demand for it.
00:26:50
Speaker
ah Right now we don't have a legislative framework for that. I'd like to at least set that into motion I want to continue to do things that protect self-custody and do that safe banking. I really like um And I know we're gonna work on outbound investment ah in terms of you know, good tools to screen outbound investment that some of the capital that is posing a security threat to the United States and I think lastly you know privacy has been one of my longstanding concerns. And you know with CFPB coming in with a 1033 rule at the end of the year, um I'm not sure we'll love everything about that. you know Chairman McHenry tried to lead the last Congress with a privacy bill that kind of updated some of the things with Gramm-Leach-Bliley, for example, go back to when that's written. There's a lot of change in the nature of
00:27:40
Speaker
um the tools that are out there that are affecting privacy, and we should get clarity for financial firms what's inbounds and outbounds and ah you know not just essentially be de facto governed by the European Union ah because they passed GDPR in the United States has kind of stayed flat-footed on privacy.
Davidson's Future in Legislation
00:27:59
Speaker
So is it safe to assume? or I know that everybody is probably hopeful that you'll continue as co-chair or full chair of the digital asset subcommittee.
00:28:07
Speaker
I'm not sure they'll continue to call it that or or whatever. I think we'll have something ah um im broadly dealing with tech or fintech. And ah it would be an honor to continue to serve as a subcommittee chairman for whomever's the chair. And I'll defer to whomever the chairman is as to how they can best use me. I'd be honored if I could continue chairing something though.
00:28:27
Speaker
Well, we appreciate you and we certainly will support that. So if we need to talk to anybody, let us know. Congressman Warren Davidson, thank you very, very much. We really appreciate it. and That concludes the Owl Explains podcast.
Conclusion and Further Learning
00:28:41
Speaker
Thanks very much.
00:28:45
Speaker
We hope you enjoyed our Hootenanny. Thank you for listening. For more Hootful and hype-free resources, visit www.owlexplanes.com. There, you will find articles, quizzes, practical explainers, suggested reading materials, and lots more. Also, follow us on Twitter and LinkedIn to continue wising up on blockchain and Web3. That's all for now on Owl Explains. Until next time!