Avalanche Founder's Full Testimony Before Congress: We Stand on the Edge of a New Era
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Avalanche Founder's Full Testimony Before Congress: We Stand on the Edge of a New Era
"Both the United States and its citizens can benefit greatly from the economic growth brought by blockchain technology."
Navigating Web3 tides with focused insightsCompiled by: Odaily Planet Daily
Dr. Emin Gün Sirer, Founder and CEO of Ava Labs, attended the U.S. House Committee on Financial Services' hearing on digital assets, held in the early hours of June 14th, Beijing time.
Prior to the hearing, the Committee released his written testimony. The original English version is available here. Below is the full translated and compiled text by Odaily Planet Daily:
Promoting Responsible Growth of Blockchain Technology
Chairman McHenry, Ranking Member Waters, and members of the U.S. House Committee on Financial Services,
It is an honor to appear before you today. I thank you for allowing me, as a computer scientist, to discuss blockchain technology, its innovative applications, economic impact, and how to understand the use cases enabled by blockchain. Understanding these key concepts enables the development of informed regulatory frameworks that ensure this technology can thrive within the United States. While the Committee has received several testimonies on blockchain, they have primarily come from lawyers and businesspeople. Therefore, I hope this testimony offers you a valuable technical and computer science perspective on blockchain and tokenization. I will focus on blockchain’s ability to transform society by making digital services more efficient, reliable, and accessible.
Our shared goal should be for the United States to actively promote the free, secure, and responsible adoption of blockchain technology and its many applications—so that as a nation, the U.S. and its citizens can greatly benefit from the economic growth this technology brings.
My Background
I am the founder and CEO of Ava Labs, a software company established in 2018 and headquartered in Brooklyn, New York, dedicated to digitizing global assets.
Ava Labs builds and helps implement technologies on the Avalanche public blockchain and other blockchain ecosystems. We have developed some of the most important recent innovations in blockchain, including the most significant consensus protocol breakthrough since Bitcoin.
Before founding Ava Labs, I served as a professor of computer science at Cornell University for nearly 20 years, focusing on improving blockchain scalability, performance, and security. During that time, I consulted with various agencies and departments of the U.S. government on multiple topics. I have made significant contributions across several areas of computer science, including distributed systems, operating systems, and networking, with dozens of peer-reviewed publications (and I am one of the most cited authors in blockchain after Satoshi Nakamoto). I received the NSF CAREER Award and served on the DARPA ISAT committee. I am currently a member of the Commodity Futures Trading Commission (CFTC)’s Technology Advisory Committee. But perhaps what I’m most proud of is co-writing a satirical piece on blockchain with John Oliver. (Odaily note: Professor Emin Gün Sirer participated in John Oliver’s comedy show.)
The Big Picture
We are experiencing an unprecedented era of technological advancement and transformation.
This trend has been driven by the computing revolution, starting with mainframes and later personal computers. However, these early systems were limited by their “standalone architectures,” capable only of processing local data and performing local computations. While they improved efficiency for existing tasks, they could not create multiplier effects due to the lack of network connectivity.
The emergence of the internet and subsequently the World Wide Web marked a critical shift—from isolated local computing to globally scaled computing. Architecturally, we moved from standalone computers to the “client-server model,” enabling us to connect to remote services operated by others and leverage their programs and capabilities. This new paradigm gave rise to digital services serving the entire world, created millions of jobs, and cemented America’s position as the global economic leader. Blockchain represents the next stage in the evolution of networked computer systems.
Today, client-server systems powering the web rely on peer-to-peer technology to connect clients to servers, while blockchains enable multi-party communication through shared ledgers. This allows multiple computers to collaborate, reach consensus, and act in unison. Blockchain technology enables us to build shared services within networks. In turn, this makes possible unique and secure digital assets, more efficient financial systems, tamper-proof supply chain tracking, digital identity solutions, transparent voting systems, and many other innovative applications. By leveraging blockchain and the digital uniqueness it creates, we can redefine trust, ownership, commerce, entertainment, and communication—ultimately transforming how we interact with digital systems and with each other.
The implications of this breakthrough are profound. Blockchain enables us to create systems that reduce costs, increase efficiency, and give individuals greater control over their digital lives and virtual worlds. Moreover, we can establish new types of markets and entirely new digital goods and services, empowering individuals and communities to drive economic growth and social impact. Advances in blockchain technology will lead to leaps comparable to those brought by the internet itself—because they will improve the internet. This technology creates a new public good: a shared ledger usable across countless applications. As we enter an era of customizable blockchains and smart contracts, further optimization of this software will enhance existing functionalities while ensuring compliance with relevant regulations.
Blockchain and Smart Contracts: Cross-Application Impact
Blockchain solves a long-standing problem in computer science: enabling multiple computers around the world to agree on a piece of data and its place within a larger dataset (i.e., achieve consensus).
While this may seem obscure at first glance, it is a foundational building block for solving complex problems that traditional internet systems struggle with—such as creating digitally unique assets, tracking their ownership, and securely executing business and other processes. In doing so, this technology does not rely on humans or intermediaries for its security properties; in fact, it often provides strong integrity guarantees even under partial system failure.
Let me be clear: the appeal of distributed or decentralized networks stems from many reasons unrelated to securities law, financial services regulation, or other legal frameworks governing commerce, entertainment, and communication. Distributed networks are inherently more resilient, secure, auditable, and available for builders.
Blockchain builders did not develop this technology to circumvent laws and rules, but rather to solve computer science challenges. Compared to the client-server model, blockchain’s potential applications are broad and diverse—many of which were previously too expensive or impossible to realize. Below, I will discuss some key applications and innovations enabled by blockchain.
Blockchain Is Rapidly Evolving
In the 14 years since Satoshi introduced Bitcoin to the world, blockchain technology has advanced rapidly. The Bitcoin blockchain pioneered a consensus mechanism—the way participating computers agree on data—commonly and inaccurately referred to as “proof-of-work.”
Bitcoin has proven to the world that public, permissionless blockchains are possible. This topic of consensus is known in computer science literature as “Byzantine fault tolerance,” and research into such systems—funded by the National Science Foundation and DARPA—has involved hundreds of scholars over decades, including myself. Bitcoin solved this problem and demonstrated that this technology can create and maintain digital assets and establish and transfer ownership.
Over its 14-year history, Bitcoin has withstood countless attacks and remains stable and accessible without any central authority maintaining its operation. In contrast, even the best client-server services built by Microsoft, Google, Amazon, and Facebook have experienced numerous outages during the same period. Computer scientists didn’t stop there. Subsequent blockchain technologies expanded upon this core capability. Most notably, Ethereum introduced the concept of smart contracts—self-executing programs encoded on a blockchain. Smart contracts enable a wide range of applications, including popular peer-to-peer lending, social networks, digital collectibles (like NFTs), in-game items, and the digitization of traditional physical assets on a single chain governed by unified rules.
The latest architectural breakthrough in blockchains is known as multi-chain blockchains. In these systems, developers can create chains with custom rule sets, execution environments, and governance mechanisms.
This customization not only unlocks use cases previously impossible on single-rule-set blockchains but also isolates traffic and data into environments built for specific tasks or applications. Examples include Avalanche and Cosmos, which can create specialized blockchains—sometimes called subnets or app chains—that can be designed to meet compliance requirements. For instance, South Korea’s SK Planet recently launched a dedicated blockchain on Avalanche, attracting over 58,000 fully validating customers within days. Additionally, Ava Labs is working with Wall Street firms to create a specialized institutional blockchain. With multi-chain architecture, operators gain full control over who can access the chain, who secures it, what token (if any) is used for transaction fees, and more.
There is a clear trend here. Blockchain technology is rapidly evolving naturally toward greater flexibility and security. In other words, complex problems are being solved through code.
From these developments, we draw a clear lesson: policymakers should target regulations based on specific implementations (i.e., the activities they enable) and leave the mechanisms for achieving these goals to experts. Because we can now customize blockchain implementations, it is easier than ever to regulate the implementation—not the technology itself—and achieve regulatory neutrality.
Regulating the Tokenized World
Blockchain is a technology for building resilient and fault-tolerant applications. In practice, they are open, programmable platforms that users can interact with like public resources. This powerful construct naturally gives rise to many different types of applications, leading in turn to tokenization—the creation of digital representations of rights, assets, and other things.
Not all tokens are equal in implementation or function, and they must be treated differently based on their nature. Tokens cannot simply be categorized under one set of rules because they vary widely in functionality and characteristics. A useful analogy is paper: we regulate based on the rights, assets, or things created by the text, numbers, and images on a page—not the paper itself.
Token types include, but are not limited to:
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Real-world assets: Tokens can directly or indirectly represent traditional assets. For example, land ownership can be tokenized so that each token corresponds to a uniquely identifiable parcel. In many cases, real-world assets are already regulated, and digitizing them onto a blockchain format should not trigger entirely new regulation.
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Virtual goods: Tokens can represent digital art, collectibles, game skins, etc. These items vary widely in function and form. They can range from simple non-programmable images (a common use of NFTs) to complex assets (some used in games) that directly encode various functions and features within the asset itself.
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On-demand payments: Public blockchains constitute shared computing resources that must be allocated efficiently. Tokens are a perfect mechanism for measuring resource consumption and prioritizing important activities. These tokens are sometimes called “fuel tokens.” For example, BTC is the fuel token for the Bitcoin blockchain, ETH for Ethereum, AVAX for Avalanche, and so on. Without fuel or transaction fees, individual users or small groups could potentially monopolize the blockchain—similar to a denial-of-service attack—rendering it unusable.
The list above covers a broad range...
However, this is merely a snapshot of what is happening and what could happen. I encourage you to consult our "Owl Explains" educational program for further information.
As a first principle, determining a regulatory regime must begin and end with the function and characteristics of the token—not the technology used to create it. At Ava Labs, we call this rational token classification. Let me be clear again: tokenization was not created to evade laws. It is a natural outcome of blockchain technology—a step forward relative to traditional systems, just as computer databases improved upon paper filing cabinets.
Beyond rational token classification, regulations involving tokens must be formulated in a way that can be enforced at the appropriate level where necessary information exists. Just as we don’t expect internet routers to verify the authenticity of content sent over social media apps, we cannot place the regulatory burden on technical layers that have no knowledge of on-chain content or operations. These platforms already offer features like locking and transfer restrictions that can help encode such limitations.
Improving Market Efficiency, Transparency, and Oversight
Blockchain and smart contracts can serve as the foundation for a more transparent and efficient financial system, giving all participants—including regulators—a level playing field with clearer visibility into the behavior and activities of all market players than ever before. Privacy remains an essential component of any system. Developing these new ways of providing and regulating financial services should incorporate personal privacy protections. These improvements can only be fostered through supportive and collaborative efforts by regulators and policymakers who provide reasonable legal frameworks to promote the responsible growth of these technologies.
How does this work in practice? A perfect example is exchange credibility.
Last year saw the collapse of several crypto asset exchanges, most notably FTX. Let there be no mistake: these failures were not failures of blockchain technology, but failures of traditional custodians in safeguarding user deposits. Not a single major decentralized exchange suffered a similar fate. Blockchain technology is designed to eliminate reliance on centralized intermediaries who might jeopardize user funds, market integrity, and other essential characteristics of well-functioning systems.
Beyond on-chain custody and trading, a recent breakthrough innovation known as enclaves enables new markets to strictly constrain—or even eliminate—the ability of market owners and operators to engage in certain behaviors. This innovation can prevent undesirable actions such as front-running, stop-loss hunting, and privacy violations that threaten market integrity. Ava Labs’ own Enclave Markets is pioneering this innovation, which we call a fully encrypted exchange.
Another example is in lending, which demonstrates the benefits of conducting activity on-chain versus with centralized counterparties. Last year, several off-chain lenders and borrowers faced major failures, while major on-chain lending platforms remained largely unaffected during market turmoil. Relying on over-collateralization and automated systems, these protocols were able to flexibly manage liquidations and margin calls during sharp market declines. While not a panacea, evidence so far suggests that decentralized networks perform better than centralized counterparts under stress—consistent with the intended design of blockchain systems.
Stablecoins as Digital Gateways to the Dollar
Stablecoins, predominantly pegged to the U.S. dollar, have seen widespread global adoption because they represent a better way to hold dollars. Stablecoins not only enhance user experience (by increasing fund transfer speed and reducing transaction costs) but also meet growing demand for stable dollar-denominated assets in regions facing economic uncertainty and local currency hyperinflation.
By transforming the value-preserving power of the dollar into an accessible product beyond U.S. borders, stablecoins help individuals protect their savings from volatility in local currencies and theft by criminals and other bad actors.
With appropriate regulation, the potential of stablecoins can be realized—enabling their responsible growth through new technologies and configurations.
Blockchain Can Accelerate Recovery from Climate Disasters via Insurance
Consider the emerging property insurance crisis triggered by increasingly frequent and extreme climate events. State Farm, California’s largest property insurer, announced it would no longer issue policies due to excessive wildfire risk. Insurers in Texas, Florida, Colorado, and Louisiana face similar pressures—either halting coverage, raising rates, or seeking contingency plans for insolvency.
Under these conditions, who will American communities rely on to secure their homes and economic futures? If industry consolidation leads to the collapse of small regional insurers, how can such risks be managed?
Using smart contracts and the Avalanche network, the Lemonade Foundation currently provides insurance to over 7,000 farmers who previously had access only to prohibitively expensive premiums or delayed payouts with long, cross-seasonal impacts. These premiums would have been economically unfeasible for the organization, as manual processes are now compressed into a single smart contract. Another example: in 2019, the U.S. government completed accounting for Hurricane Katrina payouts—a process that took 14 years following the 2005 disaster. Delays were partly due to difficulties reaching agreement among the many stakeholders involved.
In 2012, Superstorm Sandy damaged nearly 500,000 homes, causing about $50 billion in losses. The same gaps in insurance payouts hindered urgent recovery efforts along the entire East Coast. Families who paid premiums for years received minimal compensation to rebuild their lives. When litigation eventually led to action and more payouts, the damage was already done, leaving scars on communities. A blockchain-based distributed ledger could greatly streamline such processes, and our company is working with Deloitte to develop and implement this technology under a FEMA contract.
Supply Chains and Combating Counterfeiting
Global supply chains face mounting challenges—from rising demand for goods to disruptions caused by pandemics—impacting even our most critical security infrastructure. When supply chains fail, problems can become especially acute, and fraud can make matters worse. Blockchain and smart contracts can help secure and verify supply chains across global industries.
Blockchain can manage supply chains by providing a reliable and transparent record of product origin and authenticity. De Beers’ Tracr platform demonstrates how diamond supply chains can be managed, while other deployments span luxury goods to concert tickets. Blockchain can become a vital tool in combating counterfeits of medical supplies, pharmaceuticals, food products, and consumer tech—counterfeits that directly harm our communities and your constituents.
Upcoming Technological Improvements
Although there have been publicly reported exploits of smart contracts, the field has matured significantly since its early days, and new technologies are ready to enhance the security of on-chain assets and applications.
Unlike fundamental issues inherent to smart contracts and blockchain technology, the potential risks associated with smart contract-based systems stem primarily from implementation flaws—such as poor coding and failure to follow best practices—not inherent flaws. Much like the weak software stacks of the 1990s internet, smart contract programming tools are still in their infancy.
The field has rapidly evolved, giving rise to a thriving ecosystem of software threat analysis, certification, and validation services that audit smart contracts against security standards. Additionally, we now see automated tools for program verification and model checking, helping uncover vulnerabilities invisible to the human eye. These technologies can even run before deployment, identifying bugs before they affect anyone.
Finally, new mechanisms such as runtime integrity checks, smart contract safety switches, and automatic fund flow limits are emerging to help contain the impact of unexpected errors in real time. Systems that follow best practices—such as lending platforms and well-designed bridges (like those built by Ava Labs)—have already safely handled billions of dollars in value through their smart contracts without incident.
Given my academic and research background, I am confident this field will continue developing stronger technologies to ensure the correctness of smart contract software. One of the spillover benefits of this effort will be enhanced integrity and security across all software—including software unrelated to blockchain.
Technological Competitiveness and the Risks of Inaction
We stand at the edge of a new era, and nurturing and supporting the development of this revolutionary technology is crucial. By doing so, we can unlock its full potential, ensure U.S. leadership in innovation, drive the next generation of internet technologies, and achieve tremendous economic growth.
Responsible participants in the blockchain space want thoughtful laws and regulations that incentivize growth and good behavior, punish bad actors, and empower users of blockchain networks. The community stands ready to guide policymakers in achieving these goals. However, without wise frameworks and collaboration, the path to losing technological leadership is clear.
America won the first wave of the internet revolution precisely because it fostered responsible innovation and freedom. The U.S. must carefully and wisely classify and regulate blockchain applications and tokens while ensuring the free yet responsible growth of blockchain technology. Otherwise, any regulatory framework faces two paths of serious failure.
First, regulating blockchain platforms themselves at the protocol level. This is equivalent to regulating internet protocols—an approach that would doom the fate of information technology and the vibrant internet we enjoy today. Second, lumping together tokens and smart contracts created using blockchain into homogenous, incompatible categories. This is akin to regulating social media apps the same way as consumer healthcare apps. Instead, tokens and smart contracts must be analyzed case by case and carefully regulated based on their function and characteristics.
As we move toward an increasingly digital world—powered by AI, virtual reality, and remote work—we will rely more and more on digital value transfer and programmability. Blockchain is the clear technical answer to these needs and has evident synergies with the global economy. The addressable market for digitizing global assets and securely transferring value over the internet exceeds the total value of all existing assets combined. Failing to recognize the power of blockchain technology—whether due to misunderstanding or ignorance—will have catastrophic consequences. Failing to quickly provide a thoughtful regulatory framework will not only undermine economic growth but also make it easier for bad actors to conduct illicit activities.
Finally, we must remember that just as there are good people committed to public service, there are also good people committed to building technologies that improve lives. By working together, we can lay the foundation for trusted, efficient, self-executing systems that will become the bedrock of our modern economy.
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