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Ep 40: US Congress Dusty Johnson (R-SD)
58 Plays28 days ago
Rep. Dusty Johnson sits down with us to discuss why FIT21 isn’t just another bill, but a potential game-changer for digital asset regulation. From tackling SEC overreach to exploring blockchain’s use in preventing FEMA fraud, Johnson shares an unfiltered perspective on what's really at stake in the world of crypto and U.S. policy.
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Transcript
Introduction and Sponsorship
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. My name is Silvia Sanchez, project manager of Owl Explains and with that I'll hand it over to today's amazing speakers.
Interview with Congressman Johnson
00:00:34
Speaker
Congressman Johnson, thank you very much. Welcome to the Avalanche Owl Explains podcast. You've been an extremely active advocate in Congress on digital asset issues, given your service and the Ag Committee and the the Commodity and Digital Assets Subcommittee. um So the audience today, the digital asset community, blockchain people, crypto people,
00:00:59
Speaker
um have a lot too a lot lot of insights to gain from you that we appreciate your sharing. So thanks for being here. Yeah, i am I'm concerned you're overly optimistic about the ability of politicians to provide insight. yeah Well, we'll give it our best shot. How about that? Yeah, well, good enough.
Understanding the FIT21 Act
00:01:18
Speaker
um Earlier this year, ah the House passed the Financial Innovation and Technology for the 21st Century Act, FIT21, by a pretty large bipartisan vote. um Most Republicans, all but I think two or three, along with 71 Democrats, actually worked together ah to pass FIT21.
00:01:39
Speaker
um How do you see that impacting the crypto and blockchain industry in the United States? And what message does it send to the industry and those looking to base their operations in this emerging technology in the United States? Yeah, I mean, before we talk about the more important industry impacts that you're asking about. And I do want to tee up just a bit on the bipartisan nature of the vote you talked about. Obviously when we think doc we normally normally think about partisan exercises and snarling at one another and howling at the moon, but this really was a team effort.
00:02:13
Speaker
And at the very early on, myself, Patrick McHenry, ah ah French Hill, G.T. Thompson, we just decided we were going to do this in a bipartisan way with our Democratic colleagues. And we found some really, really willing partners in folks like Wylie Nickel and Yadira Caraveo. We made lots of changes.
00:02:35
Speaker
to the legislation to accommodate ah their legitimate concerns and those of their colleagues on their side of the aisle. And and then on both committees, both financial services and agriculture, and then Wiley and Yadira went out and they did deliver the votes. Just as you said, this is how DC is supposed to work.
00:02:53
Speaker
And I just do want to call that out. Now, when you talk about industry it impacts, it's going to be all positive. There might be an assumption by some people out there that industries don't like to be regulated. But I think the folks in the digital assets space understand that you have to have certainty to have a big boy, big girl industry that's going to grow and is going to be a place where consumers and investors want to be. And so we we found, of course, there are parts of our bill that the digital asset space doesn't love ah because maybe it it pinches them but overall I think they acknowledge that this is exactly what needs to happen and we see that in Asia and we see in Europe that there are regulatory regimes that are coming into play and we have seen in America investment and innovation flow to those marketplaces where there is a
00:03:45
Speaker
consistent, predictable, regulatory regime, us getting fit 21 signed into law is going to put us right there where we want to be. Yeah, I think you're absolutely right. I mean, I think, you know, when we talk about emerging technologies, um oftentimes we're talking about technologies that don't or aren't supported today by laws and regulations that were written decades ago.
Regulatory Challenges and SEC's Role
00:04:09
Speaker
um The SEC, of course, has been incredibly aggressive in their enforcement against the activities of a lot of these companies who are simply trying to play a fair game, right? But regulation by enforcement is hardly a productive way to go about ah fostering these innovations in the United States. Can you talk about sort of
00:04:31
Speaker
the SEC's approach and the CFTC's approach and the balance you see between the two ah the two entities from the regulatory perspective and how FIT21 impacts that. You are exactly right in that enforcement you know regulation by enforcement letter is the wrong way to do it. It doesn't provide us a lot of predictability. There's also a sense that that Gensler is just trying to seize authority wherever he can. And and we don't want a situation where the CFTC and the SEC have a race to the court to the courtroom door.
00:05:12
Speaker
with it, whoever can file the suit first ends up being the chief regulator. It doesn't have to be that way, particularly because we know that depending on how you measure it, 80 or 85% of the volume of trading for digital assets is already with um you know Ethereum or Bitcoin that are already broadly acknowledged as being commodities and not securities.
00:05:37
Speaker
I think Genzler has done a lot of damage to this space, and I think Fit21 is going to put us on the proper regulatory footing that we're going to know what the role of the SEC is, because there is an important role. I mean, when you've got digital assets being offered as an initial coin offering or as a legitimate kind of equity stake for people who are helping to build this network before it's decentralized, I mean, clearly, that that the s there's a role for the SEC.
00:06:03
Speaker
I mean, they're going to be the first regulator for most of these coins, most of these digital assets. But once something graduates and is legitimately decentralized, and that concept of decentralization is at the heart of FIT21, when you trigger decentralization, then you're
Blockchain Beyond Payments
00:06:19
Speaker
a commodity. No person is in charge. And that's when it makes a lot more sense to have the CFTC as the lead regulator.
00:06:27
Speaker
I think in the public domain, there's a lot of confusion and quite frankly, on Capitol Hill, I think you'd agree, um a lot of confusion between cryptocurrencies and blockchain and and and the utilization of both and that there's a generally negative perception among a lot of legislators and regulators towards cryptocurrency and digital assets and and blockchain technologies. I'm curious.
00:06:54
Speaker
as a South Dakotan, ah what your perspective is in terms of your constituents and their impression of blockchain technologies and cryptocurrencies and digital assets, and then that among some of your colleagues here in DC. I don't think there's a uniquely South Dakota view of these issues. I think you described it right that nationally as well in Congress that there is some well-earned skepticism. I do think people have a tendency to think too much about crypto as a payment mechanism. The blockchain is the really powerful technology that is going to seep into and is going to power every industry. but We want to make sure that we're not
00:07:40
Speaker
slowing the innovation in that space. I mean, even if you you are never going to take your phone and pay for chewing gum at the store with a ah cryptocurrency, and and let's be honest, that's almost certainly not a dominant use case of the future.
00:07:57
Speaker
But even if you are never going to do that, you are still going to have blockchain help make your life more efficient and more effective ah behind the scenes with all different kinds of companies and vendors that you're going to and and interact with. We want that innovation here in America. We want that innovation also with friends and allies. We want to create these virtuous cycles where blockchain can make the world safer and more prosperous. And it absolutely has that power. um I think some of my colleagues When they want to try to become experts in the digital asset space, I think they make a mistake in that they try to understand how the technology works. And they want to go back, and they want to read like the Bitcoin white paper, and they want to understand the ledger entries. And I guess that's fine. My observation is they have a tendency to get wrapped around the axle.
00:08:49
Speaker
with the mechanics of it. I used to be ah an energy regulator. I really didn't have to know how in the insides of the power plant worked for me to be an effective market regulator of the end user product, the retail electricity. and And similarly, I just try to tell my colleagues, listen, we're not reinventing the wheel here. We have a way way that we regulate securities. We have a way that we regulate commodities.
00:09:16
Speaker
The only real innovation we've got here is a decentralization test, which helps us figure out when is one one and when is it the other. Once I get them to back up and look at the big picture, I think most of my colleagues in the hill really get it. Yeah. Yeah. I think you make an important distinction, and that is that there's the cryptocurrency side of this equation that you cannot have cryptocurrency without blockchain technologies. But the benefits of blockchain technologies, you don't need cryptocurrency at at all.
00:09:46
Speaker
whatsoever, right? Oh, I mean granted, you know, coins are a way that you power a lot of these blockchains, you know, when the services are actually offered, but you're you're absolutely right. I mean, it doesn't have to be married to that. Yeah, I think it's, and I'll just bring this to light given the sort of um meteorological catastrophes we've had in the last 10 days and in ah in the Southeast and with Hurricane Milton coming across Florida now. um Avalanche Blockchain, our hosts this morning, actually worked on a project with Deloitte.
00:10:17
Speaker
and FEMA.
Avalanche and Disaster Relief
00:10:18
Speaker
And as a fiscal conservative that I know you you are, and we all hate government fraud, waste, and abuse, um they created a blockchain that um that ah um assisted FEMA in following natural disasters and created an automated, secure, and transparent payment process from FEMA to the recipients of FEMA funds. I think as you come back in you know November and consider FEMA funding, we may want to give consideration to utilization of blockchain technology to reduce some of that fraud, waste, and abuse.
00:11:02
Speaker
Yeah, I think the use cases are innumerable. I mean, you just can't even count them all, right? I mean, it's thousands and thousands. I mean, it's it's dozens and hundreds of ways in each industry or each arena.
00:11:15
Speaker
And I'm not so naive as to think that government is going to be in the position of picking the most effective use cases. Like, it's going to take a little while for the marketplace to sort all this out. And there are going to be lots of winners and lots of losers. And let's just hope the government doesn't get too involved in choosing either.
00:11:36
Speaker
Right. Right. But don't you think I mean, wouldn't you agree that when you talk about federal spending, um that there's a more efficient way to do it that gives greater visibility to ah members on Capitol Hill, ah where you're appropriating dollars, whether it's the Department of Agriculture or the Department of Treasury and in the CFIUS committee has gotten a lot of bipartisan attention lately in terms of foreign land sales. And some of those land sales can be tracked using blockchain technology.
00:12:04
Speaker
Well, absolutely. I mean, I guess I would just go back to what what I already said, which is this is the blockchain technology. It has the potential to make more efficient and more effective most everything we do. I mean, it's going to be a central tool that is used in in in ways that we don't even we can't even I can't even really comprehend as we're talking about this. But yes, it's absolutely going to be there. I just I think We can certainly push the federal government to be an early adapter, but I think it is our effort is far better placed in making sure that we have an appropriate regulatory regime, which today we do not. I mean, 21 isn't the law of the land.
00:12:46
Speaker
So when we're thinking about the federal government interaction with blockchain technology, like let's get Fit 21 signed into law. Let's allow the innovation to happen. Let's allow the market to sort some of this out. And then, you know, as some of these products mature, then we absolutely need to push the federal government to be using them.
00:13:01
Speaker
So we've got an election coming up in November and then we'll have a lame duck session of Congress. Um, you mentioned fit 21 is not yet the law of the land, but it did pass the house, uh, pending in the Senate. Um, there's a few bills that I think will get done before the end of the year. That could be potential vehicles, uh, for fit 21 or at least some of the language, some of the market structure language and fit 21, um, care to prognosticate a little bit about what that may look like in November, December.
00:13:29
Speaker
Yeah, it I would really love it if we could get some momentum behind FIT21. I mean, there's a bunch of baloney kind of inside the beltway reasons why something wouldn't happen. In the House, we took a very cooperative approach between the two committees, financial services and and agriculture.
00:13:49
Speaker
And the Senate, that hasn't really been the case. I mean i think with Boseman and Stabenow, the the ranking member and the chairman of the Senate Ag Committee, they've they've got, I mean, they've got some concepts they want to move. They haven't really had the same partners um on the SEC side of the House in the Senate. And and if that We may get wrapped around the axle, the Senate may get wrapped around the axle on some of the jurisdictional things, which is, well, we can only really, because, you know, the SEC folks in the Senate don't want to make big changes right now. We're just going to address the CFTC issues.
00:14:25
Speaker
Listen, and that's all we can do fine. I get it, by the yard it's hard, by the inch it's a cinch. Incremental progress is progress nonetheless. But I really hope that we put together a double or a triple here rather than you know settle for a single or a walk. But it is still really uncertain what the Senate is capable of doing.
00:14:45
Speaker
Right. Well, I think a lot of the listeners today would agree with you and they are equally optimistic and hopeful. um Let's change topics a little bit away from FIT21 and talk about, let's talk about DeFi and stablecoins. Stablecoins especially seems to be an area that Chairman McHenry and Ranking Member Waters and the Finance Services Committee have been working towards.
00:15:08
Speaker
um
Stablecoin Legislation Hurdles
00:15:09
Speaker
But they haven't gotten there. um Thoughts on potential for stablecoin legislation becoming the sort of the low bar that maybe gets done before the end of the year? Yeah, I, you know, a year ago would have thought stablecoins were kind of the layup.
00:15:26
Speaker
that this was an easier area rather than the market structures, which admittedly, I mean, our market structures bill was putting some you know more innovative concepts forward, um things that had not been legislated before. I just thought that stable coin stuff would be easier to do. That has not proven to be the case. It's not jurisdictional to my committee on Ag at all, but obviously following it very closely. I think we're gonna get there, but like almost everything and In congress it just takes longer than it needs to and yes ah Maxine Waters Patrick McHenry are saying ah similar things but Patrick who is a great leader not just in this space but in all financial service areas Housing banking everything I mean he he didn't run again. I mean he's he's done at the end of December
00:16:14
Speaker
And so hopefully, I just hope that we can get a breakthrough on the stablecoins before he's gone. you know The three or four folks who are looking to replace him on the Republican side are all really good people. But I think Patrick has a uniquely strong command of these issues, and and it would be great to be able to advance stablecoins before he's gone.
00:16:36
Speaker
Yeah, I think um I give you credit as well. I mean, I think the industry has been um very well served by having some extremely interested parties ah in terms of yourself and Chairman McHenry, um Congressman Hill, Congressman Barr, Congressman Thompson, Chairman Thompson, that have shown an interest and a passion really for trying to address this the the issues around digital assets and and and blockchain and cryptocurrency. So thank you for that.
00:17:05
Speaker
Because you mentioned you know some names of some really great people. I mean, I'll say it again. It really has been a team sport. I mean, there with Patrick and with French and with GT and I, i just there was never any scheming. There was never any guile. There was never anybody trying to cut somebody off at the pass. There were fights about who was going to get to make these comments or give this speech or file this amendment. I mean, it was just really like, guys, how are we going to go get this done?
00:17:32
Speaker
And French and I in particular made lots and lots and lots of joint appearances. And it was just always a joy to work with somebody who, A, understood the issue, B, was driven to get it done, and and C, just didn't get didn't get distracted.
00:17:47
Speaker
yeah um One of the other areas we could talk about that that that gets a fair amount of press, um central bank digital currencies. A lot of concern in that space. um You've co-sponsored HR 5403, the CBDC Anti-Surveillance State Act, when it moved through the
CBDCs and Privacy Concerns
00:18:08
Speaker
House. and Talk about that a little bit and and some of the prospects and and bipartisanship effort around that.
00:18:16
Speaker
Yeah, there's not going to be a central bank digital currency in America. I mean, full stop. That's just not going to happen. and And we don't need it. There aren't going to be a lot there aren't going to be competitive advantages that you know a central bank digital currency brings. this is These are things that the that the marketplace can already do.
00:18:35
Speaker
And I just, I mean, there's been a fair amount of fear mongering in this space. I think some people are kind of looking for a villain and I get it. I mean, that being said, though, I think a lot of a lot of us are rightfully concerned about the ways that that an overly intrusive government could misuse central bank digital currency. So it's just not something we're going to do. That is not going to be that. That's not going to hold back America. We're still going to have a huge amount of innovation.
00:19:03
Speaker
and and Frankly, a huge amount of innovation that the dollar, the American dollar is still at the heart of. um i think i think ah Well, thank you for that. I think you've just made a lot of people smile, so that's good news. ah How do you feel? There are still you know a fair number of members of Congress, I think, that um when we say um when we say blockchain, they hear Bitcoin.
00:19:28
Speaker
um How have you found that education process amongst your colleagues and over the course of the past 18 months to where we are today and the collaboration, if you will, between industry's education efforts, lobbying, dare I say, and and moving things forward over the course of the next several years?
00:19:50
Speaker
Yeah, i I have really tried to get people out of the weeds. When I have a colleague who wants to talk about, oh, this currency that had this fork, or you know this different government governance provision, or that um the verification of the ledger happens in this different way, i just I'm like, dude, you're in too deep.
Educating Congress on Blockchain
00:20:19
Speaker
like we we the Others, like the broad marketplace, is going to sort a lot of this out. And we don't need you know Mr. Congressman to be this mired into it. I mean, we're not IT experts. We're not engineers. We're not entrepreneurs. We want to create a predictable and consistent regulatory environment so the creators can make great things happen.
00:20:50
Speaker
And in fact, at the the whole but i mean at the heart of the value proposition around these digital assets is that you know government acquiescence is not necessary at every step along the way. I mean, a lot of this is about making sure that you have the the speed and the safety and the security ah that can happen with a system that you design that doesn't have you know the the third-party verifier. and And obviously, different folks are going to design their blockchain technologies in different ways. And I have found that it's easiest to get my colleagues
00:21:26
Speaker
ah properly focused on the role of government when I get them out of the design of a particular blockchain and into answering the question, what is an appropriate role of the CFTC and the SEC to protect markets and consumers?
00:21:44
Speaker
I think you're absolutely right. Government will never move as fast as technological developments, right? So i think I think everyone's effort, everyone's goal from the industry perspective is to at least work with the Congress and work with the legislators and the regulators to try to at least get the guardrails right and then let the industry foster it the innovation that it will operating within a known regulatory structure.
Regulatory Clarity for Digital Assets
00:22:11
Speaker
And that's been the frustration thus far.
00:22:13
Speaker
Well, and I've got a few colleagues who just, that they think this is all snake oil. they They think this is a product that doesn't have intrinsic value. And they believe that a regulatory regime um validates the worth of it. And I just said that's not how we do things in this country.
00:22:31
Speaker
I mean, actually, indeed, if you're if you're selling snake oil in this country, there are still legal protections that govern the marketplace. You and I may decide that fidget spinners or beanie babies have no intrinsic value.
00:22:46
Speaker
We still have a reliable court system. We still have you know a regulatory regime around how those transactions happen. We don't just allow people to get defrauded by Beanie Babies because we think they're a joke. And so I've also tried to convince my colleagues, regardless of whether you think the kit the the possibilities and the opportunities of digital assets are little or whether you think they're big, we still need to have rules of the road.
00:23:13
Speaker
right um Looking ahead, 2025 and the 119th Congress, um you know, obviously we have to wait and see what gets done during the lame duck, but I think there's still probably going to be a long way to go on on digital asset related legislation, um be it in the financial services or the Ag Committee. um Any thoughts what your focus might be and and steps that you'd like to see the 119th Congress take in this space going forward?
00:23:42
Speaker
I mean, we really do need to get fit 21 done and to the extent that we maybe get a part of it, maybe we get all of it in the lame dock, but if we get a part of it, we need to be focused and resilient and making sure that we go get the rest of it in the 119th, the next two year period.
00:24:00
Speaker
I think we want to make sure that the CFTC, to the extent that under fit 21, they take up some new responsibilities. We want to make sure they get the resources they need ah to beat a good cop on the beat um and and and strike that right balance.
00:24:15
Speaker
now Number one, I believe that in and in my own right that we want to make sure we have resource advocacy adequacy, but also that's the commitment that G.T. Patrick French and I have given to our democratic colleagues.
00:24:28
Speaker
they they there their biggest concern about FIT21 is just making sure that if the CFTC has new authorities that they're not spread too thin.
CFTC's Role in Regulation
00:24:38
Speaker
And that's a legitimate concern on their part and we've committed to them to be working on that. And so we want to make sure that in the next appropriation cycle that the the regulators have what they need to do the job well. And I would tell you that's also what the industry asks for.
00:24:51
Speaker
i mean the having a regulator that can't do their job or processes things too slowly or doesn't have the human power necessary to actually review a filing and process it, that none of that serves industry well. None of that fosters innovation. so um And then I just think longer term, we want to continue to have Congress thinking about Where is industry headed and how do we make sure that we don't unnecessarily slow that that innovation?
Conclusion and Engagement
00:25:24
Speaker
congressman I think that's a great conclusion. um We appreciate your time. Thank you very, very much.
00:25:34
Speaker
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