Senate Standing Committee on Commerce and Consumer Protection

Welcome to the Hawaii State Senate Committee on Commerce and Consumer Protection. I'm Jarrett Keohokalole, Chair of the Committee and I'm joined by my fellow Senators. I'll let them introduce themselves briefly. Tim Richards from the Big Island. We have two other Members who might be joining us.

We are now convening this Wednesday, November 12, 9:30 a.m. CPN Committee Informational Briefing, the purpose of which is to receive updates from industry professionals and the Department of Commerce and Consumer affairs on the current landscape of digital assets and related regulatory developments at both the national and state levels.

Following the briefings, there will be an opportunity for Members to ask questions because this is an informational briefing where we ask Members of the community and the State Administration to basically update the Members on the status of policy issues.

We will not be taking public testimony at this time, but this briefing is being streamed live on YouTube and we're here at the Capitol in room 229 where all Members of the public are free to to join us in the event we need to abruptly end this proceeding because of technical difficulties. We will try to reconvene later.

We abide by the Senate rules of decorum and and we appreciate everyone for for joining us today.

I will note briefly that last week our counterpart Committee in the House, the House Consumer Protection Committee, noticed a similar informational briefing on the but specifically related to fraud and the issue of bitcoin kiosks that have been proliferating throughout the state.

Because we were focused here on the state's interconnection with the broader national issues and the federal actions, we wanted to try and carve out space for that discussion and then respect the prerogative of our counterpart Committee. So we'll leave the kiosk issue for the House as they've already noticed it.

And if that turns into legislation, then obviously we'll see it during the session. So first up, we'd like to ask the Aptos foundation to join us and present. Good morning.

Good morning. Let me get my screen shared here. Hold on one second. How's that look? Can you see it.

Looks good. Please go ahead.

Okay, perfect, perfect. Hold on. Let me please just move this bar out of the way. Aloha, Senators. Mahalo for this opportunity to be here today. I am really grateful for the chance to share a bit about this technology that I have personally been deeply passionate about for several years now.

And I really believe it's one that has the opportunity to in an innovation for Hawaii and our people. So let me just dive right into it a little bit about me I am JC Yoon. I was born and raised on Kauai. I now live on Oahu.

And I am the community operations lead for Aptos, which is a layer one blockchain built by the team who originally designed the blockchain tech for or meta, otherwise known as Facebook. Our co founder, Avery Ching, he's also from Hawaii and as is our head of treasury who you'll be hearing from shortly. Michael.

He'll be sharing more about Aptos and diving into the specifics of digital finance. But first I'm here to help explain a little bit about blockchain and crypto. I know that crypto and blockchain are really complex topics and it can feel pretty overwhelming.

I also know that some folks aren't really like particular already interested in learning more about crypto because they think it's just kind of a casino or it's a scam or it's only for Republicans. I can assure you that the blockchain, like all other technologies that you've experienced, is pretty party agnostic.

So what I'm trying to do is like level set here by acknowledging that we as an industry sort of have a little bit of an uphill battle, but I think it's an important hill to climb. So I'm here today really in the interest of progress.

I want to help demystify the technology, explain what the blockchain is and what it unlocks, and kind of share my perspective on some of those misconceptions. And I'd like to share why I think it's incredibly important, important for Hawaii and our people to sort of begin learning about this tech and embracing it.

If you're wondering who I am and why you should even be listening to me today, super short version is that I have spent sort of the large part of my career locally and now remotely just trying to ensure that as the world evolves, it's sort of a faster and faster uptick that Hawaii and our people just don't get left behind.

So real quickly, I have worked locally as a journalist, I've been in nonprofit management, I ran corporate communications for Central Pacific Bank, and most recently I have been working in crypto for the past four years for a very, very brief part of my journey.

I thought I wanted to go into politics, so I went to law school and I got a job right where you all are sitting today at the Legislative Reference Bureau as a research attorney. I realized super quickly that my skill sets are better suited elsewhere.

But it really helped lay a foundation for me to understand the Importance of legislative and political buy in to make the changes needed for progress, especially in really emerging industries like, like crypto. So with that, let's get started.

So, you know, I said earlier, and I'm speaking a little fast because I have kind of a bulk of a presentation I really want to get through, but blockchain is really like, as a technology it is really complex and I think, I think it is.

But if we're being honest, like, so is a lot of the tech that kind of runs the Internet, that runs our cell phone, that runs a lot of the AI models that we all use today. And yet somehow we're all still on a regular basis without really needing to know like what's going on under the hood.

And I think that's where we're also headed with blockchain.

So I guess my point is like, I know we're all here to get like an overview of what the blockchain is, how it relates to crypto, how it all works together, and I'm going to go into that, but I, I really want to stress that it's important to not get too bogged down in the weeds and try and keep your eye on like the bigger picture.

So, so with that kind of dive in with some of the important terminology beginning with blockchain, and you can kind of think of the blockchain as like a digital ledger that tracks asset movement. It's kind of like a lock spreadsheet, if you will, that everyone can see, but no one can go in and secretly edit.

Every new entry that goes onto the blockchain has to be agreed upon by a group of people, which makes it really, really hard for people to cheat or fudge or erase anything. Crypto. So Crypto is kind of the money on that runs on top of that ledger.

It's almost like when you're using Venmo, you're like sending money digitally. But Crypto kind of removes that middleman so people can send value directly to one another using math and cryptography instead of using a bank or credit card company, Bitcoin.

So bitcoin was the, it's actually both the original blockchain and the name of the crypto that moves on that chain. It's the OG chain. It's a lot of people would argue it's the most valuable chain, but today there's actually dozens of blockchains and countless numbers of cryptocurrencies. So how does it all work? A little process called validation.

So when someone, let's say Phil, wants to send Jack $10 worth of Bitcoin. He's recording a transaction on chain, so he goes into his wallet, he hits send, it triggers a transaction. And that transaction needs to be convert, confirmed or validated. And there's really two ways to validate transactions depending on the blockchain. Both of them involve one.

People have to have some skin in the game and this is really just a like a financial or resource commitment that acts as sort of a security deposit to show that hey, I'm going to play by the rules, I'm not going to try to fudge any numbers or details on the blockchain.

I'm going to make sure everything's accurate and then two, getting rewarded for their effort. So just a real quick explanation of these two different types of validations. The first one is called proof of work and it involves mining. And this is how early transactions like Bitcoin verified their transactions.

Every time a group of transactions is ready to be recorded onto the blockchain, they're bundled together in what's called a block and computers, also called miners, they then compete to solve a really complex math puzzle.

And the first one to solve that puzzle gets to add that block of transactions to the chain and they earn Bitcoin as a reward. So the reason it's called the blockchain is that it's literally a chain of blocks. Every new block contains a summary of all the blocks before it and that link makes the entire chain connected.

So once a block is validated, it can't be changed without altering every single block before it, which is practically impossible. So that's what makes the blockchain immutable and tamper proof. I also mentioned skin in the game with proof of work.

The miners economic stake is really the amount of computing power that it's required to solve these intense math equations. So the more profitable that bitcoin as an example becomes, the more competition there are for miners to mine those rewards. The second type of validation is called proof of stake.

So unlike proof of work, proof of stake does not require expensive or extensive compute power. Instead, people do what they call locking up their tokens as collateral in exchange for the opportunity to validate transactions. So here's how this one works and this is kind of in the weeds, so I'm kind of just giving you real high level.

But essentially validators stake their tokens. Let's use ETH as an example. Common crypto token that runs on the Ethereum blockchain. So they stake their eth. One of those validators is selected at random by an algorithm, and that validator gets to create a new block.

All the other non selected validators verify that block, make sure that, okay, this is accurate transaction and then the new block is added to the chain. And as a reward, that validator gets to earn transaction fees that are small transaction fees that are paid by the users of the Ethereum blockchain.

So the economic stake here is a little more direct, right? You're investing money that you paid for in that token and you're posting it as almost like a bond or a security deposit. And the wide majority of chains these days, including Aptos, are proof of stake chains.

They are much faster, cheaper, they're way more environmentally friendly and it makes it more practical for things like payments, real world assets, which Michael will be talking about, and then apps or governments that some businesses might use. So now I've given you kind of like a high level overview of how it works.

And then I'll just kind of quickly go into some of the primary benefits of the blockchain over some of traditional methods of record keeping and financial rails that we have. Number one would be decentralization. So the power isn't held by any one company, company or government.

You'll hear a lot of people talk about interm intermediaries or removing the middleman. It's really like shared across many computers, reducing any single point of failure or control. Another benefit is security. Every record is verified and locked in place. It's really almost impossible to tamper with. And this helps us protect people's assets and information.

And then lastly, transparency and efficiency. Everyone sees the same record in real time, cutting out a lot of unnecessary paperwork, delays and really just keeping the system accountable and honest. And so that's a really high level overview of some of the important terminology and how blockchains work at a real basic level.

And now I want to talk about the part that I think has made the technology really useful in everyday life. And this is the part that honestly that got me the most excited when I first started getting into blockchain and crypto. These are the things that let it do more than just send and track money.

And it's called smart contracts. So in the early days, blockchains like bitcoin were pretty simple, right? They only recorded one kind of transaction. It was like sending and receiving bitcoin. That was it. It was almost like a check register, just only tracked money.

Then came the smart contract era, starting with the Ethereum blockchain that I just used as an example. Smart contracts are the pieces of code on the blockchain that automatically carries out an agreement when certain conditions are met.

So there's no bank, there's no lawyer, there's no middleman needed whatsoever, at least as far as the technical transaction is concerned. Put differently, smart contracts are, I like to think of them as like, if then agreements that live on chain and automatically enforce all the rules that everybody agreed to in advance.

You can kind of think of it like a vending machine. Like if you put your money in the machine just checks, like, hey, did you put the right amount of money? And if so, boom, you get your snack. You know, I think personally that smart contracts open the door to a whole new world.

So instead of only exchanging currency, now pretty much anything that you can assign value to can live on chain as a digital asset. And that includes things like artwork, concert tickets, money, digital IDs, and even real estate can live on chain. All of these things and more can be recorded and transferable on chain.

In other words, we kind of move from recording just money to recording ownership of really almost anything on the blockchain. And again, I like, I don't want to get too bogged down here. There's a ton of books, videos, resources, if you really want to go down that rabbit hole.

What I think is most important here is understanding the potential for the tech and the concept that the blockchain is really just far more than financial speculation. It's a new technology that allows for digital record of ownership of pretty much anything that you can assign value to.

I almost liken it to the movement from records to cassette tapes to CDS to MP3s. And now you have streaming audio. Every version of that was just a technological advancement in a particular industry. And so you can think of blockchain and smart contracts as the next evolution of the Internet.

And I know I'm like kind of dumping a lot on you right now, so if you're having a hard time wrapping your head around that, I'll just give you a few of my, like my favorite examples. So here's some real world use cases for the blockchain that I like. Car titles. I am selling my car now.

I have no idea where my car title is. With the blockchain, as soon as you pay your car off, your car title automatically transfers to your digital wallet. If you later want to sell it, you just simply transfer the title on chain to the new owner. It happens instantly. It's security. There's no looking for papers.

There's no waiting in line at the DMV, no spending time on the phone. By the way, this is already happening. In 2023, the California DMV began moving all of their car titles on chain. Texas and Illinois are also exploring options to do the same internationally. You're seeing places like Korea, Dubai, Brazil, India.

They're all in various phases of tokenizing their car titles on ch. College transcripts are another. Another one of my favorites. Last time I needed mine, I had to call the registrar. I had to send in a self addressed stamp envelope.

I had to pay a fee, I had to wait several weeks to get my transcript with the blockchain. My transcripts just go straight from my school to my digital wallet. It's verifiable, secure, it's, it's impossible to alter. Even though some of those grades I might wish that I could alter.

When someone needs to see it, I just connect. I just connect, I verify and I disconnect. There's fees, there's no waiting, there is definitely no self address snap envelopes. Another one of my favorites is collectibles.

So like if you like connecting, collecting for example, fine wine, rare sneakers, expensive Legos, Hawaii, we're short on storage or heat and humidity. They're just not ideal for storing these type of things. So blockchain lets you own a digital version of those items.

They kind of like prove your ownership while the company can kind of safely store your physical items wherever they house them. And then when you're ready you can try, you can redeem that token to have them send it to you.

Or let's say your hot Nikes went up in value and you want to take the profits, you can sell that token and take the profits. And then of course, you know, there's the primary use cases for blockchain right now which is sort of financial assets, including cryptos, real world assets and stablecoins.

And real soon I'm going to turn the presentation back over to Michael to chat about more of that along with some of the ways that we're operating in this space on Aptos. But before I do, I want to wrap up by sharing some really quick stats.

That sort of show where we are as an industry more nationally and globally. So globally, blockchain and crypto are just being adopted at really warp speed. Right? I just want to share just a few of the quick highlights.

I think some of the upcoming presenters are going to go into more detail on this, but just wanted to share some of the latest metrics and some of these reports are hot off the press. A16Z crypto released the State of the Crypto report, I think just a week or two ago.

So as an example, top assets by market cap, US Tech companies, and global commodities like bitcoin are just really anchoring the modern economy. Bitcoin alone, not including any of the other cryptocurrencies, is the eighth largest asset by market cap. And that's ahead of like, giants like Meta, Tesla, Jp Morgan Chase, Walmart, even.

And not only has the number of crypto owners gone up significantly, but the number of people who are actively transacting on chain has increased to a pretty significant number of 40 to 70 million people per month. All of the world's largest businesses are on chain.

If you look at some of these stats, you know, 6 in 10 Fortune 500 executives say that their companies are all working on blockchain initiatives. Nine in 10 of these same execs all agree that clear crypto regulation is desperately needed to support the innovation. And almost all of the world's largest financial institutions are on chain.

Whether it's the ones that our tutus are using or our kids and grandchildren are using. Everyone From Visa to MasterCard, PayPal, Robinhood, Morgan Stanley, BlackRock, there is literally no escaping it. This is sort of like has hit escape velocity at this point. So that's kind of like the tail end of my presentation.

As you can see, the rest of the world is already embracing this technology. I think that our opportunity now is to make sure that Hawaii is a part of that future and not just watching from the sidelines. So that is why I personally think that this is so important for Hawaii.

Hawaii faces some of the highest cost of living and the city steepest barriers to entry in the country. I think because of our physical location in the middle of the Pacific, we're often really kind of honestly the last to benefit from some of these new industries, but we really don't have to be this time.

At the same time, I want to acknowledge the real concerns that people have, you know, around scams and bad actors and protecting our kupuna, because, you know, those do exist. Those concerns are definitely valid. But I think the answer is not to avoid the technology altogether.

I think it's to learn more and to create stronger consumer protection laws that make it safer for everybody to participate.

I think by, by learning early and passing thoughtful reform, we can protect our kupuna and prepare our keiki for what I think we're heading into, which is pretty obvious, and a new era of innovation and, you know, really building a future where local people can use this tech to start businesses and wealth and thrive in an increasing digital economy.

I'm going to hand it over to Michael now, but I do want to leave you with one parting thought to mull over before I do. This is a picture of an article from a newspaper in the year 2000. So 25 years ago, people thought the Internet was a passing fad. They thought it was fringe.

They thought it was over complicated. They thought it was full of scammers. And we all know how that story ended. Blockchain and digital assets are at the same crossroads today. The question really isn't whether the technology is going to matter. It has proven itself to matter already.

I think the question is whether Hawaii will be ready when it does. So that's all I have for today. Mahalo for your time and welcome, Michael.

All right, Thank you JC. Can everyone hear me? Yeah. Please go ahead. Thank you. Okay, let me share my screen.

Here? Okay, great. It's a pleasure to speak to all, all of you today. Appreciate the Hawaii Senate's attention to the matter. My name is Michael Ching. I'm—I was born and raised in Hawaii. I currently manage treasury and operations for Aptos Foundation. Just a little bit of background on myself.

Before joining Aptos, I spent 17 years at a local banking institution where I led teams across treasury, strategy, mobile banking, and investments. Three years ago, I made the leap from traditional finance to blockchain because I believed, and I still do, that this technology will fundamentally transform how finance operates.

And that transformation is well underway, as you can see from JC's presentation, and I'll have a bit more to share on my side as well. For those who are not familiar with Aptos, Aptos is a high performance, permissionless proof of stake layer one blockchain. It's designed to support Internet-scale applications for billions of users.

Aptos was founded by teams behind Facebook's Libra and Diem Project with the goal of creating the safest and most production-ready blockchain in the world.

Notably, Avery Ching, who's Aptos's Co-Founder and CEO is from Hawaii, which underscores the strong local roots we have behind this technology that, you know, we can support these global, globally recognized platforms. In just three years since launch, Aptos's performance and adoption have been noteworthy.

There have been 3.7 billion transactions done on chain, 19 million active users who use Aptos today, more than $1 billion in real world assets, and then from a technology standpoint, the technologies continues to improve at a very, very rapid pace. The network boasts sub second finality.

That means we can send funds from one person to the next person in less than a second. It's nearly instant. The average transaction fee as well is 1/10 of a cent, which is essentially free. Security, decentralization, and utility make blockchains like Aptos capable of supporting real world applications at scale. Today, those applications are no longer theoretical.

More than 1,000 developers are building on Aptos and there are hundreds of projects currently delivering value across industries like finance, commerce, and entertainment. I'll take you through a couple of notable use cases as well that we're seeing in real life here.

So, the world's largest regulated financial institutions, so BlackRock, Franklin Templeton, Apollo, have launched tokenized money market funds on Aptos. Deploying these funds into Aptos increases transparency, enables real time peer to peer transfers and improves operational efficiency for users.

There's nearly half a billion dollars of those assets on chain right now on Aptos and much more if we think about the global scale. Micro lending in emerging markets, in that example, PACT Protocol—it's a blockchain-based platform for lenders in emerging markets. Platform allows lenders to originate and service loans on the blockchain providing transparency and efficiency.

Over $1 billion in on chain assets have been issued through PACT which allows small business owners to access capital in days enabling them to buy equipment, open shops, invest in clean energy. It's an amazing technology and those folks are doing well. The last example I have here is also is decentralized cloud.

It's Shelby, which is a collaboration between Aptos Labs and Jump Crypto. It'll be the first decentralized hot storage network which is designed for content streaming, AI inference, and real time apps. Shelby, once again, is incubated by Aptos Labs and Jump Crypto. It'll provide open, resilient, and affordable cloud solutions.

If we think about the recent outages we've seen from AWS, Amazon Web Services, which reveals the fragility of today's Internet infrastructure, services went down, half the Internet was dark. Because of how centralized and widespread these tools are, decentralized platform hosted on a blockchain like Shelby would help reduce these risk.

These are examples of how—of examples that show that Aptos is a ready technology in production powering meaningful use cases. Likely one of the kind of more prominent use cases that we see now and likely for a while are stablecoins.

Essentially, stablecoins are digital dollars that have become the fastest, cheapest, and most global way to move money. Over the past year, stablecoins process more than $46 trillion in transaction volume. That's a T for trillion. That's double the growth versus the previous year, and it's three times the size of Visa, and it's approaching the US ACH which basically provides the plumbing for the US bank system.

So, it's definitely grown in size. The largest—the leading stable coins issued by tether, which is USDT and Circle USDC, hold $183 billion and $76 billion in market cap.

So, these are quite sizable, and they're largely backed by US Treasuries to ensure the stability of their value. Stablecoins really have the potential to modernize payments and remittances by enabling money to move on blockchain rails which operate 24/7 without relying on banks or clearing houses.

Payments that take two to five business days through Swift or ACH can settle in seconds. Traditional cross border transfers often carry high fees and exchange cost which would only cost a fraction on blockchain technology. And just to kind of summarize my points, which reiterates a lot of what JC mentioned as well, you know, the use cases we see on Aptos today are only the first step in this sweeping transformation.

Blockchain technology will transform the core infrastructure of the coming digital economy, delivering systems that are transparent, designed for innovation, and will refine how the world engages with us. The momentum will continue. Even the largest financial institutions are embracing crypto.

Traditional institutions like Citigroup, Fidelity, Jp Morgan, MasterCard, Morgan Stanley, and Visa are planning to offer crypto products directly to consumers, allowing them to buy, sell, and hold digital assets alongside traditional investments. This, I think, is truly an opportunity for Hawaii to embrace the opportunities emerging in blockchain.

We need to find a way to balance consumer protections, which is important, with enabling growth for this industry in Hawaii. Supporting this initiative will strengthen economic resilience, will attract high value industries, foster innovation, global reach, and just expand financial access for our communities.

And so, I appreciate the time that's—happy to address any questions or I think there's another presentation.

Thank you very much, Michael. What we'll do is let's move ahead to our next presenter, Hermine Wong, Digital Asset Policy Advisor at—and a UC Berkeley Law Lecturer.

And then, we do have some time for Q and A at the conclusion, but I think maybe we'll see if there are questions after your presentation, Hermine, and then we'll have the DCCA come up. Thank you for being with us.

Thank you so much. I hope that you can hear me. Please let me know if you can't. And thank you, Chair Keohokalole, Vice Chair Fukunaga, and Members of the Committee for inviting me to speak today. Apologies if my voice a little scratchy. I'm still recovering from laryngitis from last week.

But as the Chair mentioned, my name is Hermine Wong. I advise mostly crypto startups right now on their regulatory and policy strategy.

And I also have been teaching crypto and Web3 law at UC Berkeley Law School for the last two years. Before, before this period of my life, I actually started in the crypto industry with Coinbase, which I joined back in 2020 as their Head of Policy.

And before that, I had a decade of federal service, first at the—or first the State Department and at the White House. And the last six years, I was at the US Securities and Exchange Commission as a Regulatory Attorney.

And today, I'd like to focus on three key areas to help unpack what is going on in the regulatory and legal landscape of crypto and digital assets. And so, we'll talk a little about what other states are doing as it comes to digital asset regulation.

I'd like to also unpack the bills that we've seen come across the federal landscape. And in particular, you may have already heard about the GENIUS Act, which is state stablecoin bill that was signed into law this summer.

And, and we'll end with thinking about how this current era of regulatory innovation almost can best be taken advantage of with Hawaii's population too. One of the things I really like to start off with though is just, and this is—I do this with my students too—it's just to level set who we're talking about when we're talking about digital asset users.

And I have here three different surveys. They are from different organizations. The first one on the left is by the Federal Reserve, most recently in May 2025.

In the middle, we've got the Pew Research Center, a nonpartisan research center that I think all of us have relied on in the past for different surveys on different topics, and the National Cryptocurrency Association, that is a trade association, and its survey results are pretty representative of what we often see from the industry.

So, what I want to like just point out to a little bit of the discrepancy but also give us a little bit of more complexity to what these digital asset users do and who they are. So, according to the Fed, about 8% of the U.S. population uses cryptocurrency digital assets in any form, whether it's investing or transactions.

Meanwhile, Pew Research Center has that pegged at 17%, a much greater percentage, and industry associations and surveys typically have it somewhere between 20, sometimes as much as 25%. I've historically relied on the Pew Research Center. I always ask my students why they think that there is this discrepancy. You can see that even in the Fed, there's a time series here.

The time series tells us that back in 2021, it was slightly higher and has gone down over time, according to the Fed, and it's hard to know the methodology there. They're not diving yet into a lot of deep data for this Fed survey because the Fed survey is not focused on crypto there.

It's actually focused on the economic wellbeing of U.S. households, but there's a sense among my students, at least, that people just may not want to trust the government with some of this information about how they are spending their money. Pew Research Center probably gives us the best view of who these people are.

The survey is fairly robust, but one area that I think is worth pointing out is to look at some of these demographics and in particular, we know that the younger populations are adopting digital asset use much more quickly.

And it's almost shocking at how quickly in the section of men of 1829, this was already in October of '24, so a year ago, 42% of young men are using crypto and for them, this is—it's hard to say that half of our population of young men would be following any sort of stereotypes we have about crypto, which is that they're all money launderers, illicit financiers, drug traffickers. Right?

They, they are using it in some fashion. Almost half of them in their peer set is also aware of this.

And I suspect that this has gone up over time in the last year. Nevertheless, what we also know is that according to Pew Research Center, we see that adults still have a mistrust of this technology. It has not necessarily overcome some of the narratives, some of the worst narratives of the industry.

And JC's earlier presentation would give us probably some glimpse as to why that is, is that the difference between what was the bitcoin narrative, she called it the OG and, and some of these other more recent cryptos that are coming up all the time, some people call them the meme coins.

In the industry, there is like a bleep worthy term for them and there's about 26 million of those. Right? That is, that is so much noise in the industry, even among people who are native to it, and we see that there's still this under confidence of how secure it is.

From my perspective, that is actually a huge opportunity for us in any space to provide greater rules and incentivize good behavior, right? This is something that governments are particularly good at, which is overcoming the collective action problem, overcoming information asymmetries. A lot of noise in this industry has proliferated over time because there hasn't been rules to guide them.

And bad actors have been able to exploit that gray space. Nevertheless, people who are native to this community, some of these terms that they'll use about how to guard themselves—"don't trust, verify," "not your keys, not your coins"—these are terms that the crypto native industry throws around a lot, to say that you need to be your own bank and really verify all of this information, but if you do, there's a lot that can be unlocked.

A lot of that, those use cases that J.C. and Michael are talking about, that is for a lot of this younger population, this sense of "the financial system has not been working well for me. I don't like the intermediaries who own this financial system right now and are taking fees off of every transaction that I do."

And they are also eviscerating all of my privacy and selling all of my digital identity and digital data. And they are looking for avenues where they can not be beholden to all these intermediaries.

And we see that there is, over time, as the population has grown a little more comfortable with crypto, that the population of people who will go from never purchasing has decreased over time and willingness to purchase has increased over time, just even in the last three years.

I want to also just, again, lay of the land level set that the people who are interested in this space are actually like, on the political spectrum, very, very bipartisan. We see that 18 to 17% identify Republican or Democrat. That's a coin toss, right?

But another thing to recognize is that we see that, and this is very small print, so there's no way to see it, but this is a Gallup Poll telling us what are the top issues for voters and crypto isn't listed there.

However, this is again, a really big opportunity, I think, because if what we want to do is make sure that we have regulation laws in place that are there to really benefit the individuals, the best places for us to actually put in regulations and laws as opposed to letting the biggest players, the big tech companies, the big paint companies, write those rules and build regulatory moats, which is candidly, as JC had referenced earlier, we often talk about the difference of how.

The difference of or the analogy of the Internet era and this era and when we first had the Internet era of the mid-90s, the that I certainly remember living through, there was this sense among the native users that we're going to democratize information and there won't be gatekeepers anymore of information.

There will be a free flow of information. But in fact, what has happened over time is that without some of the more robust rules to ensure and guarantee that that information and our own digital identities as we're online was protected.

And I hope that as we embark on how do we effectively regulate the space, we keep in mind that not doing something is as harmful as handing the keys over from the individuals that we're trying to protect.

So, I said that the first topic would be an overview of how states are approaching this right now as we see growth in the digital asset space growing a lot. And I've bucket these up. This is just a sample of how different states are approaching it.

But states are all taking their own initiatives in trying to figure out what is it that their population is most interested in guarding or incentivizing protecting. New York and California are there at the top. They have always been early adopters for different reasons in this space. In New York, they've had the BitLicense regime since 2015.

No surprise. It is a a fairly robust licensing regime, but it's also where Wall street is and they are a state that's very familiar and the industry there is very familiar with those kinds of robust compliance regimes. California somewhat recently passed its own digital financial assets law. This is in 2023.

It won't be effective until middle of 2026 as they continue to craft rules about who can be a licensed provider of digital assets to the California residents, but this is not just the biggest states of California and New York who are taking a lead when it comes to digital asset legislation.

Wyoming also has been at the forefront of this space. They have created created a special purpose depository institution charter for custodying digital assets, and this has been since 2019. They have recently also launched the state's own native stablecoin this past summer.

And in Nebraska, they also similarly adopted a depository charter to allow for custodians to hold digital assets and the kinds of collateralization that would require. In both cases there's over collateralization to make it as safe as possible. Oklahoma has a new digital asset kiosk licensing regime.

This is something that the Chair touched upon that another Committee is discussing. But this has been a hot topic among some other states as well, and we see that there's some experimentation on exactly what other states will do, with New Hampshire having establishing a state reserve program, Arizona doing a pilot on unclaimed property.

This is something that may not have been mentioned in the basics of blockchain, but one of the great things about blockchain assets is what people will call the immutability, right? That is that once the transaction has gone through, people can't try to fraudulently rewrite it and scam people out of that by hacking into a central database.

And, and here this is one of the benefits. However, sometimes if people lose some of their keys and they don't properly figure out how to reclaim their property in a tech way, states are experimenting with how can we effectively allow people who hold digital assets reclaim that property.

So, let's go up a level and talk about what is happening at the federal level. This past summer, there was a flurry of bills that were debated and went through different legislative process. The GENIUS Act, which was passed and governed stablecoins.

Right now, the Clarity Act, which was the market structure bill in the House, it passed through the House on a bipartisan basis, only this week we saw after the shutdown discussions that the Senate has a bipartisan draft that would be the companion version of the Clarity Act again to regulate it on a market structure basis.

And then, there's an Anti-CBDC Act. This is an act that is actually a Trump initiative, President Trump initiative, to ban central bank digital currencies in the United States. That is probably beyond the scope of this hearing and briefing, but that is something that is a more geopolitical issue.

Let me dive into the GENIUS Act first to give you a sense of what is it doing and why was it the first place for people to really get traction in Congress? Stablecoins, according to the GENIUS Act, they are going to be privately issued by private companies, dollar-pegged digital assets.

So, another way of thinking about that is one stablecoin equals $1 in the digital crypto ecosystem. And, and what's significant in this definition too is that underpinning that is that only a company can issue a stablecoin. You may sometimes hear about this in the crypto world of protocols and protocols running things, so that that takes away this sense of management decision making process.

That is a discussion we'll touch on later about the kind of definition of a security where the SEC really steps in to determine whether or not this is—this asset is—a security that needs to go through the registration process at the SEC or it's not a security and maybe it's just a commodity.

But here we're talking about companies issuing. So, there's no question that there's a management team in place here. There's also three different paths that the GENIUS Act outlines for any issuer that wants to issue a stablecoin. First, the obvious one is that you will be a subsidiary of an existing bank.

The next one is to pursue a new OCC charter, Office of Comptroller Currency, at the federal level. And then, the third option is for you to be a state issuer and to be a state issuer, it can be at any state, and you would have assets under $10 billion, so your reserves would be under $10 billion.

And the framework that the state has for having any sort of compliance regime for these issuers would then be certified at the federal level, but then, the state would be able to run its own program for compliance examination and making sure that this stablecoin regime actually stays in the state.

It offers bank style prudential oversight under the GENIUS Act. This is important. For anyone who has been listening to crypto chatter for the last, you know, decade, which I have been, the—much of the discussion used to focus on is something a security or is it not?

This stablecoin bill really, again, gets to probably the lowest hanging fruit use case of crypto, which is as just a pure payment vehicle, just a pure settlement transaction vehicle. And so, that's why we are focused in the GENIUS Act with bank style prudential oversight.

This also means that that bank style prudential oversight can create really high compliance costs—high compliance costs that make it prohibitive often for any new entrant entrants to get into this and offer a different product. This will probably be most true for those who pursue an OCC charter at the federal level.

But there are gaps too with the GENIUS Bill. Secondary markets are unregulated.

That means that yes, the issuer of the stablecoin is highly regulated, but if once that stablecoin is out in the wild and it goes on any sort of other platform, like my former employer, Coinbase, right, an exchange, they, they don't get regulated by this GENIUS Act bill.

The GENIUS Act also does not require that these stablecoin issuers provide bankruptcy remote protection.

So, that means that even though the stablecoins, their use case is used for payment purposes, it's not guaranteed that if something happened to the issuer that the holder of that stablecoin is first in line like they would be with cash, for example. They would have super priority as a claimant, but they're still a claimant.

There's no FDIC insurance for stablecoins. Something that they don't have, which, you know, is something that I find to be an unfortunate aspect, there's no on chain transparency. This gets back to compliance costs on chain transparency. JC had talked about the blockchain and its value of just instantly being able to see what is happening.

You're not asking for books and records that are audited by some big four accounting firm and then maybe getting stale data a quarter later, one of the advantages being able to see this in real time. However, the GENIUS Act doesn't require that even though it could.

And instead, it requires monthly compliance reports produced by one of the big four, which really, again, ratchets up those compliance costs and makes it very hard for new entrants to get in, except for probably the most, the, the, the companies with the biggest assets.

Depegging risk, it doesn't address that. Depegging risk is when the stablecoin loses its peg for some reason of one stablecoin to $1. We saw that happen briefly during the Silicon Valley Bank Silvergate Bank Crisis that happened.

And a—Circle, one of the stablecoin issuers, the one here in the United States, the major one, they depegged slightly to I think almost 80 cents because a lot of their reserves were there being held in, in one of the banks—Silicon Valley Bank, I believe, or Silvergate, I can't remember.

So, but it was being held there. They then said that they would cover it. It recovered its peg, but nevertheless, Circle did the right thing to say that they were going to cover it with their corporate revenue, and it allowed for the peg to recover, however, the GENIUS Bill does not address what would happen.

This is an issue that remains outstanding. And I will say that if states don't act to kind of fill this gap, those risks are likely to stay there, unfortunately.

Now, I think that there is actually huge opportunities for banks, sorry, for states to, to lean in and create some of their own state charters for this, especially for a state like Hawaii where if you imagine that a lot of the business that happens, one of the core values for, I should say core advantages, of stablecoins is that they are very cheap as compared to credit card companies, for example—credit card companies that charge three and a half percent, two and a half percent at minimum for every single transaction, every single swipe.

Small businesses just take that on as a, an expense that they carry on their own. But stablecoin transactions can be settled for pennies, just pennies.

You would just see all of that revenue then go straight to the small businesses. Not only would you see it go straight to small businesses, you would also see it stay within the state then. Right? This is—I often talk to my own students about how with credit card transactions, as opposed to a $100 bill, if I give a $100 bill to the local restaurant down the street, they get the full value of that $100 bill.

But if I pay for my meal with a credit card, they're only getting $97 of that and then later on when they pay their vendors with that, their vendors only get $95 of that, and it will continue to go down until it's zero.

Whereas if it'd been $100, it stays $100 throughout the whole lifetime of that $100 bill. Every one of those fees instead goes to Visa and the banks that issue it. Stablecoins don't have that same problem and they can settle instantly.

And by settling instantly, that also means that the businesses themselves aren't waiting for settlement for payouts from the credit card companies. They can get that immediately into their own accounts. And I'll note that if Hawaii doesn't act, or any state that doesn't act here, right, other states are pursuing these aggressively and it may very well be that this is something with just the competitive landscape that people will choose to put their reserves in other states' charters.

So, I said that I'll also talk a little bit about what we're not seeing with that earlier market structure bill.

And the market structure bill is different in—fundamentally different in—what it's trying to address.

It is trying to address not just that very low hanging fruit use case that everyone can see of stablecoins, but instead, trying to solve that puzzle of who owns the jurisdiction of the financial system of securities and commodities and derivatives and swaps and all of those secondary market transactions when it comes to crypto assets—crypto assets that aren't stable coins.

And in that market structure bill, well, you, you can see that there is a lot of thought on the roles of the intermediaries and how we're going to regulate those intermediaries, build a regulatory moat for their business plans. It doesn't do a lot to, or if anything, to really address what is the core value for individuals.

This ability to do peer-to-peer transactions, you know, small business transactions, everyday people transactions on a digital economy, just as if you could just transport yourself instantly and hand someone $100 in cash at any point without having to go through all of the banking intermediaries, all of the broker intermediaries that we have baked into the financial system over time.

So, the things that we don't see being addressed in any of these bills is decentralized finance, DeFi, that's a crypto native term to describe those peer-to-peer transactions and how can we use technology to actually address the risk that we had a bunch of those intermediary roles built up over time, so that because we worry about those intermediaries not acting in the best interest of their customers, skimming profits off the top, doing self-dealing.

But if you take their rollout and you're able to actually use technology to ensure 100% accuracy and 100% fidelity to what the customer wants, then that's where we get to decentralized finance.

Web3. I spoke a little bit about this sense of us being able to own our digital identity in this current world of us walking through the Internet. We're in what we call a Web2 world still.

And a Web3 world is one where rather than the biggest big tech players owning our digital identity, slicing and dicing it and selling it for different ads, and using algorithms to get our eyeballs and attention span on different things, we could actually own our own digital identity.

And we would also be able to recognize that revenue, that ad revenue, that should be going to us because it's our digital identity, it's our activity that's being bought. Tokenization.

I'm sure that you guys have heard a lot about that and that's a little bit about what JC had spoken of with the idea like real estate transactions could be there.

We could also see a bunch of things like that were hard to be liquid, like are also just money market funds being tokenized and moving 24/7 effortlessly across the ecosystem. NFTs, which is something that was popular for a while but also has real use case for provenance authenticity, guaranteeing that the creators get their royalties and their credit.

Illicit activity doesn't really get addressed at all in the GENIUS Act, and that is something that is, again, a problem that we should make sure that if anyone is producing regulations in this space, this is, this is an area that we don't need to keep saying it requires more study.

We can act in this space and we should, and the crypto ecosystem would be better off if we had robust anti-fraud and regulations that address the illicit activity. There's some other areas that I've listed here.

I just want to give you a sense of regardless of the fact that there is some legislation happening at the federal level, a lot of it is not happening that you would want to have happen if your first interest was what is most valuable for the individuals. And I will pause there and turn things over back to the Committee. Thank you for your time.

Thank you very much for your presentation. You know what, why don't we just move into DFI and, and then we can maybe take a, a break after the presentation and we'll do Q and A. So, yeah, thank you again.

Up next, we have the Hawaii Department of Commerce and Consumer Affairs, Division of Financial Institutions. Good morning.

Morning. Morning, Chair, Vice Chair, Senator. Dwight Young, Chair—Commissioner—of Financial Institutions. Let me see.

I think we're—we're gonna have your slide deck come online in a second. Go ahead.

Yeah. Okay, so let me see. So first, digital currency 2025. Our agenda—briefly, just talk about how what the regulatory landscape is, a little bit about stablecoin and GENIUS Act, some concerns that we have and some recommendations.

A lot of stuff that we have was covered by the last couple of presenters and they did a good job at it, so thank you. Let me see. Digital currency regular—regulatory—landscape in Hawaii. 2010, virtual currency was deemed to be money transmission under our Money Transmitter Law.

We had trouble, or there were some hurdles licensing virtual currency companies because they didn't meet a permissible investment requirement which basically said that they needed cash to back up whatever their VC transmission liabilities were. In 2000 and—in 2020, the Digital Currency Innovation Lab was created, and it did two things.

One is it allowed a safe harbor for virtual currency companies to operate in the state. The second thing it did was it provided us opportunity to study what kind of trans—transactions—they were doing.

What we learned from that study is that most of the virtual currency transactions or the crypto transactions were investment-based versus movement of, you know, or money transmission. The DCIO concluded in 2024, and, at that point, it was determined that it was not part of our Money Transmission Law.

Around that time in 2023, the Legislature passed a law to regulate digital currency that was vetoed by the Governor, largely due to funding issues and resource issues. Thanks. Okay, stablecoins and the GENIUS Act. So, a lot of this is a regurgitation of what Ms. Wong said.

But basically, definition, GENIUS Act defines stablecoin as a means—a digital asset designed to be used as a means of payment or settlement. And as she noted, Ms. Wong noted, they're privately issued and they're dollar paid, so they need to be backed by cash or cash equivalents or US securities.

So, supposedly they are backed up by something safe and secure. A couple things to note, and just to make sure that there's no misconception because some people are unsure about this, but it is not fiat currency, it is not the US dollar, and also, it is not FDIC insured. Okay, let me see.

Under the GENIUS Act, it does provide state level oversight, or a regime, or the opportunity to regulate it at the state level, and this would be for issuers under 10 billion. One thing to note though is state level regulation is subject to the approval of the Stablecoin Certification Review Committee.

Basically, the federal regulators need to approve any state plan that is out there. And there is a requirement in GENIUS Act that says it must be substantially the same as the GENIUS Act, which will preempt, in my opinion, a lot of state laws that are out there, whether they're current or being proposed.

In my opinion as well, I think GENIUS Act requires a nationwide uniformity. Some people will say that it creates a floor but just given the money transmitter industry, where they have 50 different state regulators for each money transmitter out there, I believe that GENIUS Act was put together to set that nationwide uniformity. Little facts about GENIUS Act —passed on July 18th, 2025.

The effective date is the earlier of 18 months from passage, which would be January 18th, 2027, or 120 days after the final implementing rules from the federal regulator. We do not know when those rules are coming up.

I haven't heard anything on that. Okay. A couple of key provisions about the GENIUS Act, which was covered by Ms. Wong in the prior presenters. It seems to it would apply—sorry, issuers 10 billion or more would go under the OCC. Issuers under 10 billion have the opportunity to go with a state regulator.

State regulation is subject to the Stablecoin Certification Review Committee. It appears that it will preempt a lot of state laws, require a nationwide uniformity. The other thing out there is the Clarity Act, which was touched upon by Ms. Wong.

Clarity Act will regulate the cryptos that are not stablecoins and it looks like it's going to be pushed towards either the CFTC or the SEC, basically recognizing that they're investment types. And the last thing to note is GENIUS Act doesn't preempt state consumer protection laws. Okay. So, we do have some concerns about any proposed legislation.

And I think the first and foremost is we do not know what federal law is going to preempt from the state. There are the implementing rules that are still pending with GENIUS and then Clarity Act as well is pending out there, but I think at some point it will pass. Let me see.

There is that concern about nationwide uniformity and anything we passed may be preempted. The other concern that we have is if a stablecoin issuer does take on a state regulator, that license is good throughout the country. So, that state, our understanding, would be responsible for handling consumer complaints across the country. We have some resource concerns as well.

You know, feds—fed examiners—pay twice as much as we do. State of New York and State of California, they're, they're paid a little more than our examiners. New York has, our understanding, 60 staff to supervise 30 licensees. California currently has seven staffs with staff, but they expect to be up to 23.

So, there are some concerns that we don't have the resources to run a program as a quality program that they do. We would require, off the top of my head, probably four examiners for the program—two in licensing, two in field.

We would probably need to engage some type of blockchain analytics subscription. Cost on that, we heard, might be 100,000 or more annually. The other issue with that is we would like to have a program that sustains itself. We are not sure who would take a Hawaii license versus a New York license or an OCC license.

There is some thought out there that a company might want to align themselves with the OCC just as a way to get a national banking charter, be familiar with them, or they are already working with the bigger states like California or New York and they're just, and they would just want to continue with them.

Just other digital asset matters. As I mentioned, Clarity Act. You know, that seems to be pushing those other non-stable coin cryptos towards the SEC and the CFTC, and then you know, regulating that industry. We have the same problems.

We don't know what the preemptions would be and we also don't, you know, we don't know if there would be enough interest to support the program. Okay, so last, last page. Recommendations, at this point, because everything is still up in the air, we would recommend waiting until the final rules are issued and see what happens with Clarity.

It doesn't seem efficient to start up a program that we do not know how it's going to operate or what the rules of the game are. And then, you know, there is, there are some concerns about staffing and acquiring the staff with the skills to regulate this type of industry. So, with that, if you guys have any questions.

I'm sure we will. What we'll do is we'll recess briefly for a few, for a short break, and then come back and the members can ask whatever questions they want.

Very good. Thank you.

If you can please stand by. Thank you. Recess.

Hello. Reconvening this Wednesday, November 12th, 9:30 a.m. Informational briefing in the Hawaii State Senate CPN Committee. We've heard presentations on blockchain and digital assets and policy from multiple presenters. And now I'm going to open up the floor to the Members for questions of our presenters.

I guess, you know, a lot of, lot of information presented and it sounds like there may be tremendous opportunities.

At the same time, after listening to the department's kind of areas of concern, I guess I would ask those who were among the initial presenters, you know, how you would respond to some of the department's concerns, because we have a number of areas within this Department that are facing enormous challenges at the moment.

So, you know, although this is a new area, it seems like this is sort of not the best timing for Department of Commerce and Consumer Affairs. And I guess, how would we, you know, what are some things you can recommend that will help us move forward? Either from Aptos foundation or from, let's see, Ms. Wong.

I'm happy to chime in first and then welcome JC and Michael to follow up with whatever their thoughts are, but I appreciate the concern. Having been a regulator myself and created many budget justifications over the years for our work, I can appreciate the department's concerns.

Having said that, I also believe that there are many ways to skin this cat right now. And one of the first ways is probably to do a request for comment.

You know, like let's, let's find out the kind of scale and scope of what it would be here in Hawaii and what, what the market opportunity may very well be for someone locally to want to become an issuer.

We have seen that since Hawaii had initially, I, you know, and I don't know how closely any of you followed this, but initially Hawaii's position when it came to crypto about five years ago was that this is not something that we're going to have under our money transmission regime. We will not allow for it right now.

And then as soon as those regulations were relaxed, I believe two years ago, you saw that companies came very quickly to Hawaii to open up their operations. And no one has told me yet that those companies have been big fraudulent schemes that have been.

In fact, I think that these companies have been actually acting pretty responsibly, as I understand things. So I think that you could test the waters in the immediate instance without necessarily investing all the biggest resources.

But I think that you might be very surprised to hear about how local businesses would very much welcome an opportunity to pay fewer fees.

And you may even find that there are going to be people it like he who are individuals not representing companies to say, yeah, I would appreciate more tailored protection for the kinds of business that we do here.

I would rather not go and have to do things with some agency out in Washington D.C. who I'm never going to be able to be in the same time zone with and never going to be able to get on the phone. Right. Like these are, these are, I think, are very real concerns.

And again, the stablecoin value Proposition is such a low hanging fruit of just payments. This is something that we can all understand very, very easily. And there's no reason that I think any state should sit by the sidelines when any of that revenue can actually stay within the borders.

Okay, thank you. I, you know, I, I don't have any basis for asking Oops. Additional questions at this point, but I, I do think that, you know, with respect to where the Department stands, it seems as though where a lot of the innovation that we have pursued in prior years has been really based upon timing.

And so with a lot of the federal cuts and uncertainties that the state is facing overall, it really calls into question whether or not this is the best timing for us to embark into an area that is kind of new for the Department while at the same time trying to address many of the funding challenges that we're facing as a result of many of the federal changes.

So, you know, it's not as attractive a timeframe as may have been available in prior years where we had different kinds of opportunities that arose, say with captive insurance or other kinds of industry initiatives. But I appreciate your response and hope that we can kind of explore this arena a lot more closely.

Senator Richards.

Yeah, thank you, Chair. A lot of information very quickly. So describing to the chair, it's like drinking from a fire hose. You get a full belly of water.

But boy, a lot's going by your head to that though, DCCA and I'm not sure who to ask this question to, but with the genius act, is this going to put up the guard rails around that we think we need and go, go ahead, take a shot at that. Then ask Ms. Wong to weigh in as well.

Thank you. I'll take a shot at this. But you know, Ms. Wong should chime in as well. The question is, are there guardrails? Yes, there are federal guardrails. There are some holes in it, as she pointed out. Exchanges, I think, are a big hole.

You know, you have the crypto issuers and then you have the exchanges through which the consumers Buy their coins there. I believe Genius does address it to a certain extent, saying that the exchanges need to use or custodians of wallets need to use a. Or work with a stablecoin provider that is licensed.

There is federal guidelines out there. There should be regulations for any stablecoin issuer out there, whether it's the OCC or a particular state. And then it doesn't pre up consumer protection loss. Is it as strong and robust as we would like it? Not sure on that. All that being said, final rules haven't come out.

Clarity act hasn't passed or been shut down yet. So I think there's still a lot of uncertainty, which is. Sorry. There's a lot of uncertainty, which is our biggest concern.

Okay. Don't run off. Yep. Okay. Ms. Wall, could you step in on that one too, please?

Yeah, absolutely. I do want to revisit a point I'd made earlier, which is that I would not put much weight into the Clarity act solving any issues as it relates to stablecoins. The Clarity act is not designed for stablecoins as an asset. The asset is.

Stablecoins is really very much that payment mechanism, whereas Clarity act is trying to address that division of investment vehicle versus commodities, vehicle and derivatives contracts like this. It's a very separate area. So I don't want to. I would hate for anyone to leave this session thinking that the Clarity act might someday solve some of those outlying problems.

Outstanding problems I had flagged earlier in my testimony. Having said that, I really do worry about the Genius act not having sufficiently robust guardrails because the one size fits all policy is, again, mostly drafted by the largest companies who could afford to be in D.C. to write those rules. They aren't the ones who.

Who, like this is not an initiative that was lobbied for by a bunch of nonprofits or individuals. And you can see that in the actual language, right?

The fact that there is no FDIC insurance, the fact that there is no bankruptcy remote protection, which was again, the kind of most fundamental problem that we saw in the FTX collapse and all the collapse that we saw in the crypto winter of 2022, all those headlines in 2022 that we saw with crypto, a lot of that was because there are no bankruptcy remote protections.

You would think that those kinds of basic guardrails that were. That are there to protect individuals or small businesses would get written in if that were the Genius Act's main thrust of protection. And I don't see evidence of that.

Okay, so follow up for both of you, since none of the guard rails or none of the regulatory oversight is in place right now. And theoretically we have 18 months, plus or minus until that would come into play.

Do we expect to see a rash of whatever the correct terminology is, Stablecoin, bitcoin, Meme, coin, whatever you want to use of that being introduced? Because with it uninsured and no regulatory oversight, and I'm still, I can't get my arms around what actually gives it value other than demand, so.

And then there's some of the coins that lose a tremendous amount of value. That value went somewhere. I, I just, I'm, I'm concerned that we don't have the guardrails to. If people want to invest their money, that's their business. But by the same token, I don't want people to lose their shirts on this.

So I'm trying to get a better understanding on it. Comments on that.

Are we going to see a rash of this being introduced? Well, I think there is. There are a lot of crypto currencies out there that are created for investment type purposes. And to Ms. Wong's point. Yeah, I didn't mean to confuse the two issues between stable and clarity.

My point being that the whole crypto industry in General, not just stable coins, is kind of. We're unsure as to where it's going with the federal regulation. I think at this point, if we offer regulation, we need to do something that's sound and can provide true protection for the consumer.

If we pass something, put the regulation burden on the division, are we giving them a false sense of security just because it's regulated? Regulate it, Are they safe? You know, so I think that's, that's a concern for me. We can regulate something, but we got to be able to do it well.

So right now with it being hands off and more of a, you know, you're investing your money, you should treat it like any other investment, whether you're buying stock, a penny, stock, gold, silver or whatnot. And I think people need to manage their money.

Well, I don't disagree with that. But if you buy gold and the price drops, you still have the gold. Yes. If you have stock and the price drops, you still own the stock. This to me is pretty nebulous as far as where the value is.

And so that's my concern. Any further comments? No, but I agree with you as far as what is backing up Bitcoin. You're right. There's nothing physical or tangible backing it.

Okay.

I'm happy to chime in.

Zero, yeah, go ahead, please. Weigh in. So I would say that if you were to read the original Bitcoin white paper and no reason that you need to. I will. I happily have read it many times. But the Proposition is not that it's backed by a tangible asset. Right?

Just like because it was in response to the 2008 financial crisis. Right. The 2008 financial crisis will all remember. This was when the big bank sliced and diced a bunch of mortgage backed securities. We had no visibility into it and it crashed because it was, it was not good debt. Right. That's a simplistic way of putting it.

But with the, the idea of Bitcoin was, look, there are ways in which we can still transfer value in a, in this ledger type system and we can do it without the reliance of big banks. We could do it via protocol. I'll ask you.

That's true that gold and a collectible like a Beanie Baby is very different in its nature than a digital asset, but so is any fiat currency, right? We see a lot of volatility when a country collapses. We see a lot of volatility in countries where their currency is not the United States. Right?

The United States, we enjoy a very stable financial system with the benefit of being the world's Reserve currency. But in other countries, especially in the global south, that is not the case. And that Bitcoin being backed by the utility of that infrastructure is a much more stable store of value than their own fiat currency.

And that is why we see in the Global South that they do use Bitcoin for a store of value as opposed to their own fiat currency. Now having said that, that is becoming even more true in our digital native world. Right?

As we see people remind me all the time, I have a six year old and his ability to just think about the value of anything in a digital native world with no commensurate physical real world analogy is to him perfectly reasonable. Right? That is, that is no surprise that there's value on the digital ecosystem.

There's value in how we interact in that digital ecosystem. And our presence in that digital ecosystem is, you know, we either create value. This is kind of like the social media influencers, right? Like you meet them on the street and they're nobody in social media like a big somebody.

And so this is part of what the best use cases of crypto may solve for now, having. I want to return to the earlier question of what if we.

I think that this was your question, Senator, and forgive me if I'm misphrasing it, but what, what if we regulate this and it turns out we were wrong on how we regulated it, or we didn't capture enough of it, or we give people a false, a false sense of hope because it's regulated at all.

And I would say that right now, when there is no regulations, the people who benefit most in any industry that is unregulated are actually the bad actors, not the people who need protection. And so I think that one, there is a lot of room to take some small steps that would not over commit you.

But also these small steps can be in this space of stable coins that doesn't have anything to do with the things that concern you the most right now, it sounds like to me at least, right, which is this, this I, the separation of the investment vehicles of the meme coins.

If you're dealing with stable coins, that is again the lowest hanging fruit that is instantly accessible to everyone. And we know how that should be regulated. And now all we're doing is finding a way to make those transactions cheaper and faster for everyday people.

And we want them to be, I think, protected from some of the risk that big companies might be able to bear and not flinch at, but an everyday person can't really bear.

Okay, and I appreciate those comments. I don't want it to be construed that I don't support the digital currency. That's, that's not what I'm trying to say.

I'm what your final comments about having the rank and file constituent that is just trying to invest a little bit money to make it better for themselves in the future and then have that disappear because we don't have some guardrails set up around that. That's my biggest concern.

And how do we get there, you know, given the fact that it seems like sort of gray area right now until we get a little bit more structure around us. So that's, I mean this is good for me because I'm getting a better understanding. I still don't know what we're supposed to do with this at this point.

So I'm going to turn it back to Chair. Thank you very much.

I got pretty good thanks for that. I don't know what we're going to do.

I guess, you know, I, I, I can appreciate the, the DFI's position that this is going to require manpower and money to actually facilitate and it has been our, I mean it's been the prerogative of the Legislature for a long time and the DCCA that regulatory programs in Hawaii are self funded and it's an Extraordinary thing to have the Legislature appropriate General taxpayer funds to set up regulatory regimes.

Usually the fees for licensing nurses to operate Doctor licensing or dentists or all that, those are paid by those practitioners. And then the system sort of operates independently and the community, you know, takes care of, of regulation through the, through the DCCA.

And so the question with new regulatory regimes is always who's, how we're going to start it up and then who's going to pay for it.

So I can really appreciate the, the challenge that's presented here around standing up a regulatory regime in a really novel area where there are real questions about what kind of capacity you need and what kind of expertise do you need with that capacity.

And then what happens if the whole thing changes in 18 to 24, 36, 48 months, you know, in a real complicated federal rules proceeding. With that said, I am a little bit troubled because it seems like the position of the Department now. So I'm going to push back a little bit.

And it's free for, you know, we can have a free conversation on this. It does seem like this sort of buyer beware posture right now is a pretty stark departure from the DCCA's sort of philosophical approach, as I've come to understand it, which is we're going to protect consumers.

We're going to pin these entities to Hawaii, we're going to make sure that they're domiciled here. So if there is any sort of nefarious scammy activity going on, we can go after them and we can protect the assets of our local residents.

So it is a little bit concerning that, you know, okay, we, we don't can because we don't have money, we don't have people. And so because we don't have money and we don't have people, buyer beware, Kamaina, you guys got to manage your money.

Well, in this, just in this space that appears to have hit terminal velocity, right? It is gonna, if it is not already spiraling out of our control, it might be coming. And it's really concerning that.

Until the rules come out, we're sort of delegating out any prerogative to maintain this part of our economy locally until the Federal Government comes in and says this is precisely how you should do it.

It sounds like what you're saying is between now and when the feds tell us how to do it, any local companies that want to operate in this space gotta go charter somewhere else. And then if you want to come back to Hawaii and operate, okay, fine.

Can you see how that's kind of really challenging for us to have to.

I do deal with. I do. And point well taken. I don't know what the answer is to, to, to this problem.

I agree that we would like to do more for the consumer or at least provide more consumer protection, but the question is, can we do it well, and are we better off issuing our warnings and concerns to the consumer to tell them to beware, or are we better off trying to cobble something together that may not be satisfactory?

And I think that's the dilemma that we're kind of toying with in our office. Yeah. And I can appreciate that. And you guys are administrators of policies, right? As policymakers, I Look at that 17% of young men and go, Are we just asking them to go? Are we just saying leave?

If this is a space you want to be in, we're not into it. We're telling Kupuna, don't even get involved with this because it's dangerous. It's not. And so if you guys want to get involved with it, maybe you should go. Right. And that's rhetorical. Don't even answer that.

The question I have is around Ms. Wong's suggestion that maybe your division, you know, put a call out to the community and see what kind of feedback comes back.

Is that something that you guys can do or would entertain? Absolutely. From a financial standpoint, that would probably be the best thing to do. Just to see if we can make the numbers. Numbers work. Right. Yeah.

Because if, if the expectation is that the program is self funded, you know, besides the concerns about hiring the proper talent, getting the number of staff in, we have to make sure that we can sustain the program as well, so.

Right, well, thank you for that. Because in fairness, if there is a community out there that exists, they have to be willing to say, charge us, absolutely charge us to be regulated so that we can maintain our, you know, so that we can create this regime here.

Because if there isn't a community for that, then this is, you know, a futile conversation for now. Yes. Until there's greater clarity. Right. I guess.

You know, what was mentioned earlier about the I do appreciate you helping clear up because, and then, and anybody online cut in if we're getting this wrong.

But it does seem like there's a pretty clear demarcation here between the stablecoin type technology that's pegged to the dollar that we can use to potentially undercut the transaction fees that everybody pays at grocery stores and basically at any retailer in Hawaii, which would Seem to me to be just a monumental cost issue that could potentially exceed the Jones act in terms of its impact to business in Hawaii.

And then the digital currency space that's covered by the Clarity act potentially that's really just. People are trying to bank and get in early and use it as an investment. That's kind of sort of been the conversation we've been having for the last 10 years. Right. There's.

It looks like we're starting to have a firm, a firm line here where there's currency, digital currency on one side and then digital assets on the other. So if we set the asset part aside, because I do agree that's. That's too complicated for me.

The opportunity here with the currency part, I really would like to work with the Department to be aggressive on. And if that means we have dialogue during the Legislature and we don't get there, that doesn't mean we stop. Again, a 2.5% transaction fee on all transactions in the State of Hawaii is a monumental cost driver in Hawaii.

And just the opportunity to get rid of that, I think is worth us having a conversation about cost, about how many people you need to make this happen, and about what a regulatory infrastructure looks like. I also have problems with the local banks are going to have to get into this space if they're not already.

I would like them to work with local people and local companies rather than the absence of regular regulation forcing them to go and contract with somebody in the mainland. Right.

That whole, that whole big tech building regulatory moats, I think is. Is a challenge because if we end up with a 1% fee because everybody has to contract with some digital, some big tech digital firm in three years, that's. I think it's worth us being aggressive in this space if we, if we can.

Okay, so now that you're agreeing with all of that, I guess Ms. Wong or Michael or J.C. do you guys have any, any comments on that?

My only comment is that to the degree I can be helpful to the Department in any way at all, I would. I am more than happy to make myself available because I, I too really believe that there is a lot of unlocke potential for people and small businesses.

And as you can probably sense from my own testimony, like I do fear if we leave things up to the big tech and big banks to write their regulatory moats, which is in fairness to their own shareholder value, that is exactly what they should be doing. Right. No knock on them.

But like then, then there is a lack of, of kind of perspectives for trying to. Right Size the future of this regulatory space.

Yeah. Thank you. Everyone. Well, everybody who's my age can remember the time when corner stores all around the island would not take credit cards or debit cards.

And then because of the transaction fees, the Chinese restaurant across the street from my house, you couldn't get roast pork or char siu unless you paid cash because they wouldn't take card because of the transaction fee.

And then it moved to, you got to spend $25 or more or whatever the number is to make it worth it for them to pay those transaction fees. And I really am the. This was a complicated presentation and I don't want to pontificate, but that's the part that really caught my attention here.

Because who wants to pay transaction fees? Can you comment on the other states regulatory regimes as it, as it relates to standing them up? It's a pretty, it's a pretty mature process here in Hawaii.

If we're going to stand up a new licensing or regulatory regime in the Department of Commerce and Consumer affairs, there's an expectation that this is self funded.

The startup of it is a little bit different conversation, but there needs to be some sort of fee structure to make sure that Mr. Young here can pay for his staff without asking the taxpayers continually to come in and subsidize it.

How are we in the other states with that? In the other states with licensing regimes, I don't want to say for sure, but certainly in California and New York, I can say definitively that both of them are self funded operations where they do charge fees to the licensees.

Again, the genius act is new, so I can't be certain of exactly how each state may stand up, but I do not think that any issuer would be reluctant to have a fee charge.

That seems like a, again, it would be a win, win situation across the board because then you know, if you're going to be an issuer and you do get registered with the state, it sets you apart automatically. Right. Like if you're a good actor, this is exactly the kind of thing that you want to pursue. Right.

Actors will then identify themselves and just leave. Right. They're not going to do this stuff. Only good actors would want to do this stuff. And good actors don't mind paying for that kind of compliance program.

Okay. Maybe moving forward we can, we can have discussions about, you know, you, you estimated an initial number of, of staff and, and costs associated with standing up a program that, I'm assuming there's a minimum universe that needs to exist in Hawaii that would be willing to buy in in order to make that pencil rate.

So that's something that the Legislature would probably take a keen eye to. If we move further on this. Members, any other questions? Okay, this was really, really helpful. Thank you very much, Ms. Wong, Mr. Ching and Ms. Yoon from the Aptos Foundation.

And Mr. Young, for you and your team's effort preparing and then sitting here presenting with us. Thank you very much. We're adjourned.

Thank you.

Thank you. Everybody online. Really appreciate it. Thank you so much.