How crypto can right the failures of the traditional financial system

Rep. Ritchie Torres is a member of the House Financial Services Committee who has advocated for comprehensive federal regulation of the cryptocurrency industry.

What benefits do you think cryptocurrency can bring to New Yorkers?

I have no interest in the use of cryptocurrency for speculative trading. I have an interest in the use of the underlying technology for practical use cases. I represent the South Bronx, which is one of the poorest areas in the country. I represent a district that has been fundamentally failed by the traditional financial system. For me, the combination of crypto and blockchain, often referred to as Web3, has the potential to create a new layer of the internet and as the potential to create a better, cheaper and faster payment system.

Has the collapse of FTX and other crypto exchanges changed your opinion on the industry?

FTX is no more representative of crypto finance any more than Bernie Madoff is representative of conventional finance. You should never defame the whole industry based on the egregious misconduct of one actor or a few actors. Every industry has actors good and bad, and crypto is no exception to the rule. There’s no question that the collapse of FTX adds a sense of urgency to the need for regulation. I think we in Congress have an obligation to translate the lessons learned from the collapse of FTX into a comprehensive framework for regulating crypto. The role of Congress is not to make crypto succeed or fail. The role of Congress is to make crypto safe for consumers and investors. Even as a supporter of blockchain technology, I am willing to concede that crypto has insufficient safety and soundness because we’re in a dangerously deregulated environment.

What should that comprehensive framework include?

There ought to be greater transparency and accountability around the reserves of both crypto exchanges and stablecoin issuers. Both crypto exchanges and stablecoin issuers should be required by law to prove both their assets and their liabilities and to prove that their assets are sufficiently liquid to cover their liabilities. There ought to be laws requiring a strict separation of powers and segregation of duties. An exchange like FTX should never have its own hedge fund like Alameda, and a hedge fund should never have its own exchange. There ought to be a separation between the two. There should be a requirement that unlike a bank, a stablecoin issuer have reserves that are 100% cash or cash equivalent. I have real concerns about Tether because it has reserves that fall short of 100% cash or cash equivalent.

Are you optimistic about the future of the cryptocurrency industry?

I am skeptical that the crypto industry can succeed without a comprehensive regulatory framework at the federal level. I think if there is a regulatory framework that distinguishes the best actors from the worst actors, then the industry has a fighting chance of succeeding.