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“Innovation Revolution: How Technology is Shaping the Future of Finance”

House Committee on Financial Services

December 4, 2024 (recording linked here)

HEARING INFORMATION

Witnesses and Written Testimony (linked):

• Ms. Denelle Dixon: CEO & Executive Director, Stellar Development Foundation

• Mr. Avlok Kohli: CEO, AngelList

• Mr. Nathan McCauley: CEO & Co-founder, Anchorage Digital

• Mr. Henry Ward: CEO & Co-founder, Carta

• Mr. Alan Butler: Executive Director, EPIC

HEARING HIGHLIGHTS

IN THEIR WORDS

SUMMARY OF OPENING STATEMENTS FROM THE SUBCOMMITTEE

• Chairman McHenry shared a personal story about his father's entrepreneurial struggles, emphasizing how access to credit, through tools like MasterCard, transformed their family’s life and exemplified the American Dream. He outlined the committee’s focus on fostering technological innovation to ensure the U.S. remains a global leader, citing initiatives related to capital formation, digital assets, and artificial intelligence. McHenry highlighted bipartisan efforts to expand investment opportunities, clarify regulations for digital assets, and support technological advancements in consumer finance and AI, aiming to pave the way for a new era of innovation in the U.S.

• Ranking Member Waters highlighted the creation of the National Emergency Rental Assistance Program, investments in community financial institutions, and legislation supporting small businesses. Waters commended McHenry’s innovative approach to policy, particularly regarding stablecoins and other technological advancements. She expressed hope for continued collaboration and wished him well, noting the lasting impact of his contributions to the committee and Congress.

SUMMARY OF WITNESS STATEMENT

• Ms. Danelle Dixon emphasized the potential of blockchain to enhance, not replace, traditional financial systems by improving access, lowering costs, and enabling global financial inclusivity. Dixon highlighted the importance of stablecoins in facilitating secure, low-cost global payments and underscored the need for the U.S. to lead in developing clear regulatory frameworks. She commended Chairman McHenry and Ranking Member Waters for their commitment to fostering innovation and creating opportunities for blockchain and crypto technologies to thrive.

• Mr. Avlok Kohli emphasized the transformative role of technology in financial services, particularly in fostering innovation and economic growth. He highlighted AngelList's mission to support the startup economy, managing over $125 billion in assets and facilitating investments in more than 12,000 startups. Kohli credited the bipartisan JOBS Act of 2012, championed by Chairman McHenry, for revolutionizing capital access through provisions like general solicitation and reduced barriers for fund managers. He called for continued modernization in areas such as AI regulation, blockchain infrastructure, and liquidity in private markets to sustain U.S. leadership in innovation.

• Mr. Nathan McCauley detailed the significance of crypto and blockchain technology in reshaping finance. He described Anchorage Digital as the first federally chartered crypto bank, providing secure and regulated services for institutional clients. McCauley urged the U.S. to regain its leadership in crypto innovation, warning of talent and capital outflows due to regulatory uncertainty. He stressed the potential of blockchain to streamline transactions, enhance transparency, and empower industries while advocating for balanced regulations to ensure both innovation and public protection.

• Mr. Henry Ward described the essential role of private capital in driving innovation and economic growth. He highlighted Carta's contribution as an infrastructure provider for private markets, supporting over 45,000 companies with $2 trillion in equity. Ward emphasized the need to expand investor access, support emerging fund managers, and modernize regulatory frameworks to reduce costs and barriers. He acknowledged Chairman McHenry’s bipartisan leadership and urged policymakers to further harness private capital’s potential to broaden economic opportunities for all Americans.

• Mr. Alan Butler focused on the intersection of technology, privacy, and consumer protection in financial services. He warned against exploitative practices that commodify personal data and called for stronger privacy and security regulations to address emerging risks like fraud and identity theft. Butler stressed the importance of trust, fairness, and transparency in the financial system, advocating for privacy rules that limit unnecessary data collection and align business practices with consumer interests. He concluded by urging policymakers to adopt robust oversight to safeguard innovation while protecting consumers.

SUMMARY OF Q and A

• Chairman McHenry asked Ms. Dixon about the benefits of blockchain technology and its most promising innovations. Ms. Dixon highlighted blockchain's ability to provide efficient and secure financial access, especially for those without traditional banking. She shared examples of its use in delivering humanitarian aid quickly and improving payment security in local economies like Colombia.

  The Chairman asked Mr. Kohli to name companies that benefited from AngelList and share his vision for private markets. Mr. Kohli mentioned Uber and Notion as examples of companies that raised early funding on AngelList. He emphasized expanding investor access to private venture funds to foster startups and drive U.S. innovation.

  The Chairman asked about addressing the decline in public companies while maintaining private market safety. Mr. Ward argued for improving private markets rather than pushing companies to go public, noting private markets better suit long-term, innovative projects.

  The Chairman asked about the public benefit of Anchorage's federal regulatory framework. Mr. McCauley stated that the federal charter builds trust and transparency, enabling Anchorage to securely manage digital assets for institutional clients, including large ETFs.

• Ranking Member Waters asked about the most important principles for data privacy and how they could improve outcomes for consumers. Mr. Butler responded that meaningful consumer choice is essential, requiring enforceable rights and transparency rather than the current "take it or leave it" practices. He noted that high switching costs in financial services hinder competition and prevent firms from improving privacy practices. He emphasized the principle of data minimization, suggesting that limiting data collection to what is necessary would better protect consumers and enable informed decision-making. The Ranking Member asked Mr. Butler about the potential risks of generative AI and the role of data transparency in mitigating systemic harms. Mr. Butler stated that transparency regarding AI training data is a critical first step, as it allows for public evaluation of the fairness and reliability of AI systems. He argued that understanding the origin and logic behind AI outputs is essential for addressing risks such as misinformation, discrimination, and data privacy breaches. Without knowledge of the training data, evaluating the quality and fairness of AI systems is nearly impossible.

  The Ranking Member expressed concern about systemic risks posed by AI and noted California’s new law requiring AI developers to disclose training data. She asked whether similar transparency requirements could protect against risks like misinformation and discrimination. Mr. Butler affirmed that such disclosures are vital for understanding AI systems and their outputs, ensuring accountability, and preventing systemic harms.

• Rep. Hill asked Ms. Dixon and Mr. McCauley whether their companies had experienced de-banking and requested details about the reasons given. Ms. Dixon confirmed that her company had been de-banked after working with a bank for six years without issues. She shared that no reason was provided and that inquiries for an explanation were met with silence. Mr. McCauley stated that Anchorage was de-banked in June 2023, following joint guidance from banking regulators discouraging banks from working with crypto businesses. He added that Anchorage’s bank explicitly cited their involvement in crypto as the reason for de-banking, despite Anchorage being a federally chartered bank.

  Rep. Hill inquired whether bank examiners communicated de-banking guidance verbally or in writing. Ms. Dixon responded that her bank indicated the guidance was given verbally. Rep. Hill expressed concern that verbal communication might be an attempt to avoid Freedom of Information Act (FOIA) obligations, drawing parallels to similar issues during the Obama administration involving the firearms industry.

  Rep. Hill asked about expanding private company ownership opportunities for employees, particularly through retirement systems like 401(k) plans. Mr. Ward proposed allowing employees to transfer private stock from taxable accounts into tax-deferred retirement accounts, enabling them to leverage both their retirement savings and private stock holdings for future financial security. He noted that this change could benefit employees at venture-backed companies who currently cannot access the wealth tied up in private stock.

• Rep. Velázquez asked Mr. Kohli and Mr. Ward how their platforms connect rural and underserved small businesses with investors and whether diverse investors drive diverse investments. Mr. Kohli explained that fostering emerging venture funds across the U.S. helps channel investments into local communities and that large tech companies funded through private capital often indirectly benefit small businesses. Mr. Ward emphasized that reducing costs for setting up funds and angel communities can help entrepreneurs access capital, citing regional success stories like Nashville and Austin.

  Rep. Velázquez asked how blockchain technology could provide access to capital for underserved or rural businesses. Ms. Dixon described three approaches: tokenizing assets to lower investment thresholds, using smart contracts to facilitate global micro-investments, and leveraging blockchain's reduced fees and accessibility to integrate underserved communities into financial markets. She highlighted blockchain’s potential to connect traditional financial infrastructure with new, more inclusive systems.

  Rep. Velázquez inquired about maintaining the separation between banking and commercial activity for stablecoin issuers. Ms. Dixon affirmed the importance of this principle, praising the committee’s bipartisan efforts to ensure stablecoin issuers maintain one-to-one reserves and do not engage in fractionalized banking. She argued that this approach protects both the traditional banking infrastructure and consumers.

• Rep. Sessions asked about the security of financial accounts in the digital age, particularly against threats from supercomputers, state actors, and criminal gangs. Mr. Butler emphasized the critical need to strengthen account and asset security, noting that fraud, scams, and identity theft are significant consumer concerns. He highlighted the importance of institutional security, advocating for a "zero trust" approach where financial institutions treat every communication and transaction as untrustworthy until verified.

  Rep. Sessions redirected the question to focus on preventing theft directly from accounts rather than during transfers. Mr. Butler explained that financial institutions must innovate continuously to counter these risks, building systems designed to mitigate such vulnerabilities. He stressed that engineering systems to preemptively address threats is key to safeguarding assets.

  Rep. Sessions asked for additional perspectives on combating fraud and theft. Ms. Dixon described cybersecurity as a "combat zone," where innovation must keep pace with evolving fraud tactics. She noted that many breaches stem from social engineering rather than technological flaws and expressed optimism that AI could play a role in mitigating fraud risks by analyzing vast amounts of data to detect and prevent threats.

• Rep. Sherman highlighted three key topics of the hearing—capital formation, artificial intelligence, and cryptocurrency—and urged action on pending bills. He expressed concerns about the long-term risks of artificial intelligence and warned about the potential for AI systems to develop self-awareness and autonomy, advocating for a program to allocate 1% of AI funding toward monitoring and preventing these developments. Sherman emphasized the need to develop safety protocols and collaborate internationally to ensure AI remains under human control, likening the issue to science fiction scenarios.

  Rep. Sherman critiqued cryptocurrency while referencing Donald Trump’s previous and current positions on the subject. He praised Trump’s 2019 criticism of cryptocurrencies as volatile and facilitating unlawful activities, citing the U.S. dollar’s strength and the risks posed by alternative currencies. However, rep. Sherman criticized Trump’s recent advocacy for a cryptocurrency venture, attributing the shift to personal financial interests and expressing hope for a return to Trump’s earlier stance on crypto.

• Rep. Williams asked how artificial intelligence has benefited the financial services industry and requested specific examples. Ms. Dixon highlighted AI-driven risk assessment in decentralized finance as a key innovation, helping analyze and predict risks in platforms with unknown counterparties. She also noted the use of AI in enhancing smart contracts for compliance and fraud prevention, blockchain-based identity verification to improve Know Your Customer (KYC) processes, and optimized blockchain trading and asset management. She described these developments as transformative for the industry.

  Rep. Williams inquired about barriers preventing businesses from going public and how to create a more favorable environment. Mr. Ward pointed to regulatory requirements and the demands of quarterly reporting as significant challenges for companies transitioning from private to public markets. He suggested making it easier for companies to remain private while they scale and refine complex business models, as well as reducing barriers for IPOs.

  Rep. Williams asked how Congress could help entrepreneurs raise money more efficiently in private markets. Mr. Kohli advocated for increasing the number of accredited investors allowed to participate in private venture funds. He argued that expanding investor access would channel more capital into startups, thereby building a stronger pipeline of companies capable of going public in the future.

• Rep. Meeks asked about the importance of preserving a state pathway in stablecoin legislation while establishing a federal framework to prevent a regulatory race to the bottom. Mr. McCauley emphasized the value of shared federal and state responsibilities, noting Anchorage’s transition from a state-chartered trust bank to a national trust.

  Rep. Meeks asked about the challenges faced by diverse founders in raising venture capital. Mr. Ward explained that current regulations requiring prior relationships with wealthy investors perpetuate exclusion, making it difficult for underrepresented groups to access funding. He highlighted the need to democratize investor access and praised efforts like Regulation Crowdfunding (Reg CF) and Regulation A+ (Reg A) for creating pathways to connect entrepreneurs with capital.

  Rep. Meeks inquired if barriers could be lowered while maintaining safeguards to support emerging managers. Mr. Ward affirmed that reducing barriers without sacrificing safeguards would help managers compete and succeed.

  Rep. Meeks asked how stablecoins could benefit Americans excluded from the financial system. Ms. Dixon detailed how stablecoins allow individuals to send and receive money with significantly lower fees compared to traditional remittance services. She noted that stablecoins provide a viable option for unbanked individuals, enabling transactions without requiring a bank account or credit card, thereby offering a lifeline for many excluded from the current financial infrastructure.

• Rep. Loudermilk asked Mr. Ward to describe his company and how it has created value for customers. Mr. Ward explained that Carta digitized the management of shareholder investments and capitalization tables, which were previously handled using paper stock certificates and spreadsheets. By automating these processes, Carta reduced legal fees for startups from tens of thousands to a few thousand dollars annually, lowering the barriers to entrepreneurship and enabling more companies to be created.

  Rep. Loudermilk inquired about the benefits of private markets and why venture capital investments are concentrated in sectors like software and biotech. Mr. Ward highlighted private markets' strong return profiles and diversification benefits, noting that access is typically limited to accredited investors. He attributed the industry concentration to a lack of policy intervention and suggested that broadening access through regulatory adjustments could diversify venture capital investments across more sectors.

  Rep. Loudermilk asked whether the venture capital model could be adjusted through policy and if expertise provided by VC firms applies outside software and biotech industries. Mr. Ward affirmed that the venture capital model can be adjusted through policy to broaden access to private capital, similar to reforms made in public markets during the 1930s. He emphasized that VC firms provide essential support, including funding, networks, and expertise, which are applicable across industries, citing Carta’s growth as an example of VC-backed success.

• Rep. Green asked about the impact of generative AI on job security, expressing concern about potential job losses as automation advances. Mr. Ward compared the situation to past technological revolutions, arguing that new technologies, such as calculators, historically created more jobs than they eliminated. Rep. Green countered by noting that while some technologies, like slide rules, disappeared along with associated jobs, Mr. Ward emphasized that new industries emerged, ultimately increasing employment opportunities. Mr. Butler acknowledged the validity of Mr. Ward’s points but emphasized that concerns about job displacement are significant and require attention. He highlighted the need to assess whether automation replaces quality human labor with inferior automated outputs and called for policies that evaluate these impacts before widespread adoption of AI systems.

  Rep. Green inquired about addressing bias in generative AI systems. Ms. Dixon stressed the importance of setting standards to ensure large language models (LLMs) and datasets are diverse and unbiased. She explained that policy can play a crucial role in creating systems designed to minimize bias and promote fairness in AI outputs, noting this as a key area for intervention.

• Rep. Lucas asked about the importance of the U.S. remaining a global leader in financial innovation and how it benefits everyday Americans. Ms. Dixon emphasized that U.S. leadership in setting financial standards, such as in stablecoin legislation, enables other countries to follow its high standards. She added that maintaining this leadership strengthens the U.S. dollar’s global dominance and ensures the desired outcomes for the financial system.

  Rep. Lucas asked Mr. Kohli to comment on the impact of capital formation on Americans. Mr. Kohli highlighted that fostering capital formation drives innovation, as many publicly traded companies began with venture capital funding. He argued that creating frameworks to enable more capital formation benefits the U.S. economy and Americans by bringing innovations to market more quickly. Mr. McCauley stated that stablecoin legislation could secure U.S. financial dominance and strengthen the global role of the U.S. dollar, which is critical to Americans. Mr. Ward added that the U.S. should continue exporting technology, such as AI and crypto, as this benefits both the world and the United States. Mr. Butler emphasized the committee’s role in providing oversight to ensure that innovations empower consumers and prevent risks, enabling trust in new financial technologies.

• Rep. Cleaver expressed concerns about the risks of generative AI while acknowledging its potential benefits. He noted that AI has been a central concern in public discourse, including among striking actors, and referenced cultural warnings from films like The Matrix and Her. He asked Mr. Butler whether companies developing generative AI need updated guidelines to address its risks and how far behind Congress is in addressing these challenges. Mr. Butler responded that there is significant work needed at the federal level to provide guidance and risk assessment standards for AI systems. He pointed to California’s recent regulations on automated decision-making systems as an example of efforts to address issues like efficacy and bias. Mr. Butler also emphasized the importance of transparency, noting that without clarity on the data used to train AI, it is difficult to evaluate its outputs.

  Rep. Cleaver raised concerns about the possibility of algorithms changing themselves without human direction. He asked whether this scenario was realistic or akin to science fiction. Mr. Butler explained that the "black box" nature of many AI systems makes them difficult to evaluate and govern, presenting a fundamental challenge in creating effective guardrails when even developers cannot fully explain how these systems operate.

• Rep. Wagner asked whether the Increasing Investor Opportunities Act would benefit retail investors, startups, and small businesses. Mr. Kohli expressed strong support for the legislation, noting that it would increase capital flow to early-stage startups. Mr. Ward also voiced support, thanking Congresswoman Wagner for proposing the bill and emphasizing its importance.

  Rep. Wagner inquired how expanding the accredited investor definition could promote innovation. Mr. Kohli explained that shifting from a purely asset-based definition to a more qualitative judgment of individuals would broaden the pool of potential investors. He argued that this change would significantly increase available capital for small and emerging companies.

  Rep. Wagner asked about the benefits of crowdfunding for startups and how it could be improved in the next Congress. Mr. Kohli highlighted two reasons why startups choose crowdfunding: to engage their customers in their journey and to raise funds when they do not fit the traditional venture capital model. He explained that crowdfunding is particularly effective for startups aiming to build sustainable lifestyle businesses rather than pursuing high-growth, venture-backed ambitions.

• Rep. Casten contrasted two narratives about public markets since the 1990s, one emphasizing regulatory burdens and the other highlighting expanded opportunities from alternative investments. He expressed concern that focusing solely on increasing liquidity and access for unsophisticated investors without robust protections could lead to poor public policy. He asked whether expanding liquidity in private markets requires technological solutions alone or also regulatory measures to ensure investor protection. Mr. Kohli responded that increasing liquidity in private markets does not require opening access to unsophisticated investors. He emphasized that private markets play a vital role in helping startups build stability and reliability before entering public markets. Kohli agreed that regulatory safeguards remain critical to protect investors.

  Rep. Casten asked whether private funds investing in public vehicles should include constraints to ensure only sophisticated institutional investors participate. Mr. Ward agreed with the need for structured access, stating that professional management is essential to ensure appropriate oversight in private markets. He questioned the assumption that unsophisticated investors exist only in private markets, noting that public market investors often lack in-depth knowledge but still face fewer restrictions.

• Rep. Huizenga asked about expanding ownership opportunities through retirement accounts and the SEC’s recent efforts to restrict private markets. Mr. Ward explained that allowing private stock to be included in retirement accounts would address liquidity challenges faced by employees at venture-backed or private equity-backed companies. He noted that such changes would align the duration of private stock investments with the long-term nature of retirement accounts while providing more financial flexibility for employees.

• Rep. Garcia asked Mr. Alan Butler to elaborate on how personal data is used by AI systems in light of rapid technological advancements. Mr. Butler explained that current data collection rules are outdated and lack transparency, leaving users vulnerable to their data being mishandled, leaked, or misused. He emphasized the need for stronger protections, particularly in the financial sector, to ensure sensitive information is secure and not exploited in ways that harm consumers.

  Rep. Garcia inquired about what individuals can do to regain control over their personal data in an era of AI and widespread data brokerage. Mr. Butler acknowledged the daunting scale of the problem and called for systemic changes to limit access to consumers’ data by secondary and tertiary entities. He advocated for policies that link data collection and use directly to the services individuals engage with, effectively clamping down on unchecked data brokerage.

  Rep. Garcia voiced concerns about job displacement due to AI and robotics, particularly for workers in her district. She noted that many in her working-class, predominantly Latino district worry about losing jobs to automation. Mr. Butler agreed that the issue must be addressed through labor market support, collective bargaining, and rules to ensure that technological advancements create opportunities rather than exacerbate job insecurity.

• Rep. Barr highlighted a concerning decline in U.S. global venture capital activity, emphasizing the need to bolster competitiveness in venture capital markets. He asked Mr. Ward about the challenges faced by companies in "flyover country" when accessing venture capital. Mr. Ward responded that capital attracts entrepreneurs, and entrepreneurs, in turn, draw employees. He emphasized the importance of reducing regulatory burdens to foster emerging manager funds, particularly in regions beyond coastal areas. Ward advocated for regional ecosystems to catalyze entrepreneurship, highlighting the role of investors and managers in cultivating the next generation of innovators.

  Rep. Barr asked about the challenges companies face in achieving the full potential of emerging technologies like AI. Mr. Kohli noted that while there are currently few challenges, premature regulation of open-source AI could stifle innovation. He highlighted that startups often rely heavily on open-source software and warned against restricting access to these resources.

• Rep. Davidson asked about the biggest opportunities and risks in digital assets for the next Congress. Ms. Dixon highlighted the potential for growth and innovation in digital asset technology, emphasizing the need for regulatory clarity to unlock advancements like tokenization and stablecoins. She noted the importance of staying grounded in the value and opportunities of digital assets while avoiding market excesses. Mr. McCauley stated that the U.S. must establish itself as the global leader in digital assets. He identified America's history of leadership in capital markets, technology, and the internet as a foundation for similar dominance in the digital asset ecosystem.

  Rep. Davidson remarked on regulatory challenges, including opposition to former SEC Chair Gary Gensler’s policies, and the broader opportunity for the U.S. to embrace financial innovation. He noted bipartisan efforts to address privacy concerns, including the Fourth Amendment’s Not For Sale Act, which limits government data purchases without proper legal oversight.

  Rep. Davidson asked about privacy innovations for the digital ecosystem. Mr. Butler emphasized the importance of technologies like zero-knowledge proofs, which enable individuals to participate in digital systems without constant surveillance. He underscored the need for systems that empower individuals while protecting their privacy.

• Rep. Tlaib highlighted her concerns about data privacy related to digital financial tools. She emphasized that companies often collect and sell personal data, leading to widespread misuse. Rep. Tlaib asked if companies collect data for their own use and sell it to brokers. Mr. Butler confirmed this, calling the current environment a "Wild West" due to insufficient regulation.

  Rep. Tlaib cited tenant screening abuses and asked if such practices are widespread. Mr. Butler acknowledged these issues and emphasized the need to modernize policies like the Fair Credit Reporting Act to address discrimination and data misuse.

  Rep. Tlaib inquired whether Americans oppose data collection regardless of political affiliation. Mr. Butler agreed, noting that Americans value control over their personal information.

  Rep. Tlaib asked about harmful practices by data brokers. Mr. Butler described risks like leaked personal information leading to violence or harassment, highlighting the physical and societal consequences.

  Rep. Tlaib pointed to state and EU privacy laws, asking what Congress could learn from them. Mr. Butler urged federal action to modernize protections and prevent embedding outdated practices into law.

• Rep. Timmons criticized the current administration's regulatory policies for stifling innovation and called for clear, business-friendly frameworks to restore the U.S. as a global leader in technology and finance. He asked the witnesses for their top recommendations for legislative or executive actions to foster innovation in the first 100 days of a new administration:

  • Ms. Dixon recommended passing stablecoin legislation and addressing market structure.

  • Mr. Kohli also supported stablecoin legislation.

  • Mr. McCauley called for reinstating clear regulatory frameworks from the Trump administration, like OCC interpretive letters enabling banks to engage with digital assets.

  • Mr. Ward advocated for liberalizing ERISA rules to include private stock and alternative assets in tax-advantaged portfolios.

  • Mr. Butler suggested promoting fair competition and consumer privacy through open banking rules.

• Rep. Nickel addressed Mr. McCauley about reports of Operation Chokepoint 2.0, which has left many tech and crypto founders denied banking services. Mr. McCauley confirmed that his company had been de-banked and rejected by over 30 banks, leading to concentration risks and driving entrepreneurs overseas due to distrust in the U.S. financial system.

  Turning to Mr. Ward, Rep. Nickel discussed the limitations of accredited investor regulations. Mr. Ward praised the Research Triangle Park as a hub for innovation and expressed strong support for expanding investor access through the proposed legislation.

• Rep. Houchin questioned Mr. Ward on reducing friction in venture capital pipelines and fostering regional investment ecosystems. Mr. Ward emphasized the importance of building investor communities outside traditional hubs like California and New York, noting that these attract entrepreneurs and drive innovation, as seen in regions like North Carolina's Research Triangle Park.

  Rep. Houchin turned to the panel for insights on how financial regulators can support innovation without stifling it. Ms. Dixon and Mr. Kohli highlighted the value of regulatory sandboxes and pilot programs, which allow innovation to grow while regulators learn. Mr. McCauley stressed the importance of combining innovation offices with exemptive relief authority, enabling regulators to adapt flexibly to emerging technologies. Mr. Butler added that clear guidelines and regulations are crucial for new entrants.

• Rep. Pettersen asked about fostering venture investment outside Silicon Valley, particularly in Colorado. Mr. Ward emphasized that attracting a critical mass of investors to regions like Boulder and Denver could catalyze entrepreneurial ecosystems. He noted that entrepreneurs and employees naturally follow investors, citing Colorado’s promising early-stage venture scene.

  Turning to energy needs related to AI, Rep. Pettersen expressed concern about competing with China and addressing climate change. Mr. Ward highlighted Colorado’s history of energy innovation and pointed to local venture firms focused on energy, such as Foundry Group and Rocky Mountain Capital Ventures. He advocated for bringing like-minded investors to the region to attract more energy-focused entrepreneurs.

  Finally, Rep. Pettersen sought insights on AI regulation. Mr. Ward encouraged a balanced, forward-looking approach, likening AI to other transformative technologies initially perceived as "magic." He cautioned against policy influenced by Hollywood narratives like Terminator and emphasized the importance of fostering innovation responsibly.

• Rep. Kim highlighted the importance of financial innovation in expanding economic opportunities. She referenced the significant growth in private markets over the past three decades and asked Mr. Ward how technology and modernized infrastructure could enhance private markets. Mr. Ward explained that modernizing private market infrastructure with technology—similar to what Carta has pioneered—could unlock greater entrepreneurship and diversification opportunities for investors. He emphasized the importance of applying public market innovations to private markets.

  Rep. Kim then asked about tokenization of real-world assets. Mr. McCauley highlighted BlackRock’s tokenized money market fund as a successful example, noting its ability to enable 24/7 instant settlement and reduce counterparty risk. He suggested tokenization could drive further innovation in financial services, including reducing systemic risks.

  Finally, Rep. Kim inquired about crowdfunding, asking why startups might pursue this funding method. Mr. Kohli cited two key reasons: enabling customers to share in a company’s success and supporting startups that don’t fit the traditional venture capital model, which often prioritizes large-scale outcomes like Google or Tesla. He stressed crowdfunding’s importance for smaller-scale businesses seeking growth.

• Rep. Pressley asked Mr. Kohli of AngelList, how the platform leverages AI to expand access to capital for underrepresented entrepreneurs. Mr. Kohli explained that AngelList reduces the transaction costs of starting a venture fund, enabling diverse individuals to raise smaller funds more easily. These smaller funds often reinvest in local communities, fostering regional entrepreneurship.

  Rep. Pressley inquired about safeguards for retail investors using AI-powered tools. Mr. Kohli clarified that AngelList exclusively serves accredited investors, which minimizes retail investor risks.

  Turning to Mr. Butler, Rep. Pressley asked about data privacy concerns in AI. Mr. Butler highlighted the problematic use of user data for AI training without explicit consent, often requiring users to opt out. He advocated for a user-driven approach to data sharing, emphasizing the need for comprehensive regulations.

• Rep. Steil questioned Ms. Dixon on tokenization's benefits and safeguards against illicit finance. Ms. Dixon highlighted tokenization’s efficiency, noting examples like Franklin Templeton’s reduced transaction costs on blockchain. She emphasized the transparency of digital asset technology, which allows for tracking from creation to current ownership, suggesting current rules are sufficient and should be utilized before introducing new regulations.

• Rep Flood addressed regulators' ability to keep pace with innovation in the digital asset space. He asked Mr. McCauley for suggestions to enhance regulators' human capital. Mr. McCauley recommended allowing federal regulators to own cryptocurrencies, which could deepen their understanding of the space, and emphasized the need for dedicated, specialized teams, citing the OCC as a strong example.

  Rep. Flood also asked about the significance of passing a payment stablecoin bill. Ms. Dixon underscored the transformative potential of stablecoin legislation for both the U.S. and global financial systems. She emphasized its benefits, such as enabling instant, stable value transfers, enhancing U.S. leadership in digital assets, and supporting financial innovation for American consumers and businesses. Despite challenges, she expressed hope that bipartisan efforts could lead to its enactment.

• Rep. Nunn asked about increasing access to capital for small businesses in the Midwest. Mr. Ward emphasized the importance of attracting investors to local communities, creating a feedback loop where investors draw entrepreneurs, who in turn foster more entrepreneurs and employees. He noted this long-term cycle could successfully establish robust ecosystems in states like Iowa.

  Rep. Nunn then inquired about the role of blockchain and Anchorage Digital’s experience with the Monetary Authority of Singapore. Mr. McCauley praised Singapore’s clear regulatory framework, including distinct guidelines for utility, payment, and security tokens, as well as a transparent licensing process. Nunn pointed out the value of using Singapore's regulatory approach as a potential model for the U.S.

• Rep. De La Cruz asked about the impact of regulatory barriers on small businesses. Mr. Ward emphasized that the U.S. excels in enabling company startups but noted the importance of reducing the friction and cost of accessing capital for all types of small businesses. He stated that capital is the lifeblood of small businesses, and reducing barriers will foster more entrepreneurship. Mr. Kohli added that facilitating international capital investment from allies into U.S. startups could further enhance small business growth. He pointed out the demand for international investment in public markets and advocated for similar ease of access in private markets.

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