Assembly Standing Committee on Banking and Finance

Good afternoon and welcome to the Committee on Banking and Finance's Informational Hearing on Digital Asset Innovation. We are convened today to delve into the realm of digital asset innovation a technological and financial paradigm shift that has rapidly moved from being a subject of niche speculation to a critical, unavoidable component of the global financial and economic conversation.

This hearing is vital to ensure California is prepared to responsibly govern and strategically benefit from this emerging asset class. To discuss the state of the market, we must first establish a foundational understanding of the core technology at its essence, a cryptocurrency is a form of digital or virtual money.

Its security and integrity are fundamentally ensured by cryptography utilizing advanced mathematical principles to make fraud and counterfeiting virtually impossible. By defining characteristics of most cryptocurrencies, it is the decentralization. Unlike traditional fiat currencies, which are issued, controlled and guaranteed by central banks and governments, cryptocurrencies operate without a need for a central authority.

This decentralization is enabled by blockchain technology. A technology is a continuously growing list of records called blocks which are linked and secured using cryptography. This ledger is not stored in one place. Instead, it is transparently maintained and validated across a massive network of independent computers.

This design ensures that every transaction is verified and unchangeable, establishing a level of trust and security previously only possible through traditional intermediaries. The lack of a single point of control is what gives these assets resilience and their revolutionary potential. The digital asset market has undergone a dramatic transformation and maturation since Bitcoin's genesis.

Today's ecosystem is vast, complex and far more diverse than its origins. The market now encompasses thousands of digital assets serving a myriad of purposes. It extends far beyond simple peer to peer cash transactions.

Decentralized finance applications seek to recreate traditional financial services like lending, borrowing, trading and insurance without the need for banks or brokers operating instead through smart contracts, automated programs on the blockchain. We are now able to use blockchain technology to issue tokens, digital certificates of ownership that represent unique assets or traditional assets like stocks and voting rights.

We've seen a federal level of acceptance with stablecoins as well digital assets designed to maintain a stable value relative to a specific traditional currency. This is a crucial bridge between the traditional and decentralized financial systems. There is broad consumer acceptance of this technology. Digital asset ownership is no longer confined to technological specialists.

Californians and Americans across all demographics now hold or interact with various digital assets. They recognize them as a new high growth and sometimes volatile but but increasingly valuable asset class for investment, savings and payments. This has led to an unprecedented institutional integration. What was once dismissed by Wall street is now actively being integrated by it.

Major financial institutions, global payment processors, corporations and technology giants are dedicating significant resources to incorporating digital assets and blockchain into their core services and balance sheets. This integration signals long term viability and confidence in the technology on a global level. Governments worldwide are moving beyond exploratory stages. They focus on shifting towards establishing clear, predictable regulatory frameworks.

This effort is crucial for two primary reasons. Consumer protections, Safeguarding investors from scams and market instability and fostering responsible innovation. Creating a supportive environment where these technologies can develop safely and legally.

The objective of this hearing is to explicitly not endorse or criticize the speculative aspects of this movement, but to engage in a necessary and practical discussion about its implementations. For California, we must address critical administrative and economic policy questions as digital assets move to mainstream.

The state has responded by developing effective and equitable mechanisms for managing assets that are abandoned or considered unclaimed. This ensures that state law keeps pace with digital ownership and state financial stability in the long term.

We must explore innovative concepts such as utilizing a potential digital asset reserve Fund to determine if how state resources could strategically and safely interact with asset class to enhance California stability and resilience against economic headwinds.

By understanding the technology, recognizing the market's maturity, and proactively addressing the regulatory gaps, California can position itself not just as a consumer of digital asset innovation, but as a leader in its governance and strategic implementation, as it has done so in so many spaces. We are joined here today by two esteemed speakers.

Our State controller, Malia Cohen, is joining virtually to discuss forthcoming implementation of SB822, the digital financial asset unclaimed property law. And Dennis Porter of Satoshi Action Fund, a nonprofit with a mission to responsibly advance Bitcoin and digital asset innovation. He will be discussing what a digital asset Reserve Fund could look like in California.

With that, I'd like to open up to our Committee Members to see if they'd like to make any remarks. Seeing none, let's move on to our first speaker, Mr. Dennis Porter. Appreciate you being here.

Okay, get my notes ready here. Education.

All right.

Well, thank you for having me be here. I really appreciate the honor to come before this Committee and talk about something that's incredibly important to me and I believe the future of the state and the country as a whole. Thank you, Chair Valencia and Members of the Committee. My name is Dennis Porter.

I'm the CEO and co founder of Satoshi Action Fund, a nonpartisan nonprofit policy organization that works with state legislators across the country on digital asset legislation. Since 2022, we've worked with lawmakers in over 30 states helping draft and pass legislation covering everything from bitcoin rights to unclaimed property protections, banking frameworks and digital reserve legislation.

Education first, nonpartisan and built around sound policy is the mission at Satoshi Action. Today's briefing, the first of two is about what digital assets are and how they affect the 40 million Californians that you all represent. The deck title says digital assets. Hopefully you guys can see it.

I don't know where you're looking at, but I got it above me here on this top up here. But I'm sure you all are familiar with the term digital financial assets from California's default legislation. Digital assets is simply the broader category and we're going to be focusing on that in this presentation to keep things simple.

And I'll reference as digital assets throughout the as I continue. It works. That's great. We'll cover three areas today. First, the foundation, what digital assets are and how they work. Then the application, the real world use cases and risks, and also policy what's happening federally across the state.

Across the states and what the opportunities are that lie ahead for California. But first, the numbers. These aren't projections. This is where we are right now. 3.2 trillion in total market cap larger than the GDP of the United Kingdom. 55 million Americans own or use digital assets combined. Stablecoins now boast a $300 billion market cap.

47 states have enacted some form of digital asset regulation and over 200,000 US jobs have been created. With 107 billion in capital investment being made across the country. This is mainstream adoption. Let's get into the fundamentals of why this adoption is taking place. I often get the question. I already use Venmo. I already use Zelle.

I have digital banking. How is this any different? There are three key differences that I'd like this Committee to focus on. First is control digital assets. Let users hold and transfer value directly with no intermediary required. Second is settlement. Transactions settle in minutes versus days, hours or weeks in the traditional financial system.

And this occurs 247365. And third is access. Anyone with an Internet connection can participate, including the 4% of US households that are completely unbanked today and the roughly 14% of households which are underbanked. There are real trade offs, though. Volatility, limited consumer protections and an ever evolving regulatory landscape.

But these systems are Converging, JP Morgan, Citi, Fidelity are all building digital asset infrastructure. Right now, traditional finance and digital assets are growing together not independently of each other. But not all digital assets are the same. I break them into three categories. Currency Bitcoin is a scarce store of value. 21 million coins hard cap. Think digital gold.

When you're thinking about Bitcoin, stablecoins are pegged one to one to the dollar. Think digital checking account designed for payments tokens. These represent ownership or other rights, proof of ownership of real world assets. Fractional real estate, governance rights in an organization. Even BlackRock now holds over $2 billion in tokenized Treasury bonds and tokenized Treasury securities.

And the third one, which I think is really important, that I think helps differentiate something like Bitcoin from the other types of digital asset technologies is what I would call digital asset platforms. Platforms are things like Ethereum, Solana, Xrp. These are infrastructure, the operating systems where stablecoins move.

So you have a stablecoin, but what does it operate on top of? And these are the platforms that stablecoins and other types of tokens operate on top of, including smart contracts and other forms of tokens. Think of platforms as the Rails, which a lot of the activity takes place on.

Of these three stablecoins have garnered a lot of attention from federal lawmakers. But let me explain why. Stablecoins are the bridge between traditional finance and the digital asset world. They settle in seconds, not days, at a fraction of card network costs. And because they don't require sharing credit card numbers, they they reduce risk associated with data exposure.

On the policy side, the Genius Act was signed into law in July of 2025 with strong bipartisan support. That act requires issuers to maintain one to one reserves backed by cash and cash like assets like Treasuries. Because those reserves must include Treasuries, it creates new demand for US debt, reinforcing dominance and lending dynamics.

That's why both parties got behind it. Despite our incredibly partisan political environment that we live in. Visa, MasterCard and PayPal are all building stablecoin payment rails. This isn't coming. It's here, right now, today. Now let me address another question. I get a lot. It's not backed by anything. Where does the value come from?

The answer depends on the category. Bitcoin derives its value from its design. It's scarce, durable, divisible and verifiable. It shares monetary properties with gold, but also adds digital portability and programmatic scarcity. Stablecoins drive their value from their reserve backing. As I mentioned, previously they're backed one to one by dollars or Treasuries. Platforms derive their value from usage.

So Ethereum, Solana, these are a place where things operate on top of and so the more activity that takes place on top of those rails, the more activity that takes place on top of those platforms, the more valuable the underlying token becomes for that network. And then there are things like purely speculative tokens like NFTs, meme coins.

They derive their value from speculation. They're subjective and market driven. I wouldn't say they have any underlying value. So oftentimes when I hear people say why does crypto have value? There's nothing that backs it. That's most commonly true when referencing NFTs and meme coins.

But something like Bitcoin, stablecoins and these platform tokens or cryptocurrencies definitely derive their value from a specific use case. Next is programmability. This is what makes digital assets very unique and fundamentally different from traditional money. Smart contracts are self executing agreements written in code. Here are three examples of how these smart contracts can operate.

Time locks, assets locked for a set period, like a digital certificate of deposit enforced by code. Escrow funds held and released when conditions are met, like an automated real estate closing and then multi signature.

You can have multiple wallets, multiple parties that must approve before funds move, like requiring two signatures on a check, all done programmatically on the code. These are the building blocks as well for something that often commonly referred to as defi.

When you hear the word term defi or decentralized finance, it's usually built on a lot of varying types of very complex but relatively easy to use smart contracts which enable lending, borrowing and trading as well as facilitating code with full transparency in the process.

There are two models for buying and selling which I'd like to focus on briefly before moving on. You have centralized exchanges. Think of Coinbase, think of Kraken. These are the brand names that you hear all the time. I'm sure Members of the Committee probably saw the super bowl ad.

They hold your funds, they're user friendly, super easy to use and highly regulated. But then you also have decentralized exchanges like Uniswap, which operate peer to peer.

Users keep custody of their own assets, which means more control but also more complexity and in my belief also the need for additional rules and regulations to be made around how those systems can function, who hopefully without breaking down the innovation that takes place within them. There are six key benefits that I'd like to move on to.

After talking about the exchanges, I'M going to run through these six quickly and not talk about the text on them because I kind of get into that a little bit later. But the first is financial inclusion.

And I think this is really important when you're thinking about digital assets is oftentimes you get into the Jargon, blockchain, crypto, peer to peer, and I've even referenced some of those terms here today.

We found that in our educational process as satoshi action when talking to lawmakers, regulators and even the General public that focusing too much on the technical Jargon makes it even more difficult for people to understand the technology. I commonly ask lawmakers, do you understand how the Internet works?

Very few understand how the Internet works, including myself, to be honest. But they understand the benefits and the opportunities that the Internet has and they also understand the risks. You know that you can order food, it's going to come to your door, you know you're going to order Amazon, Uber, you name it.

You know, you can virtually have the controller, you know, listening in and speaking and testifying for this hearing today. It's incredibly powerful.

That's what I would like to focus on with regards to digital asset technology when it comes to the educational component is what can it do because it's not going away and we should learn how we can benefit and also avoid the risks of the technology.

So the key really important risk benefits of the technology is the ability to create financial inclusion. There's so many people all over the planet who don't have access to traditional financial rails and even 4% of Americans, which is crazy to think.

And this is a technology where you simply, no matter who you are, where you're from, are able to access it. Transparency is also radically transparent. The costs are lower. It helps with dollar dominance, as we mentioned before, as well as grid stabilization, which is something I'll get into. And it's also an economic growth engine.

So here's some of the real world use cases so we can really bring it into focus on how this technology can help Californians. On the financial services side, you have cross border remittances. You're right on the border with Mexico. There are many people that are coming and going. They have family Members that are across the border.

I myself used to live in Juarez, Mexico, right across from El Paso. There was a lot of activity that was taking place in the border there and people are commonly sending money back and forth. It's a very costly and sometimes even dangerous activity because you know my father who lives in El Salvador today, same thing.

Though some people will send money down to him, has to go walk and get the physical cash and actually take it somewhere, which can be incredibly dangerous in a country like El Salvador. So digital asset technology streamlines that entire process. It drops the cost of sending transactions down to pennies, and also it's completely virtual.

So there's no need to go show up, grab the cash and move it to another place. You just get it right into your digital wallet. Small businesses also oftentimes are paying anywhere from 2 to 3% for their daily processing fees.

As a former small business owner myself, I can attest to the pain that goes into how much money we just have to spend to be able to accept our money.

With stablecoin payments, you can accept money for pennies on the dollar, and you can process it and receive it nearly instantly whenever you make a transaction or the traditional financial system, it can take days, sometimes weeks to get your money.

In a crypto universe, in a stablecoin universe or bitcoin universe, you can get your money fully settled within minutes, sometimes seconds. And when I say settled, I think it's important to understand that when you go and you pay for your Starbucks coffee, the money is being processed.

It can take days, sometimes up to a week, for the money to actually end up in their bank account. That is all technically wiped away with regards to how this technology operates. The moment the transaction is sent, within seconds, maybe minutes, the full settlement takes place and that person can end up going on and using the money.

And I think this is critically important when you're talking about small business owners, because they oftentimes run on razor thin margins. They have rent to pay, they have employees to pay. By getting their money quicker and faster, they can run their businesses more effectively and efficiently. Tokenization is a burgeoning area.

You've got real world assets on the blockchain, Real estate, Treasury bonds, all transparent, all verifiable. On the energy side, which I'll get to in a little bit here, so I'm going to skip past it for the sake of time.

There's some incredible energy benefits that the state can take care of, including managing the massive amount of curtailed wind and solar power that is happening here in the state. So who's already building in the space? On the consumer side, PayPal, Visa, MasterCard are all building stablecoin infrastructure. Over 15,000 businesses accept digital asset payments.

On the institutional side, JP Morgan built a private blockchain processing billions daily. BNY Mellon offers custody. Goldman Sachs, Fidelity, Morgan Stanley, Citi and Schwab all have digital Asset services. And the OCC granted five National Trust bank charters to crypto firms in December 2025. This is institutional adoption at scale, at pace.

Now let me go deeper on the bitcoin mining and energy component that I mentioned a couple of times here. The energy narrative around bitcoin mining has changed dramatically. Over 52% of mining energy comes from sustainable sources, up from 37% in 2022 mining. And there needs to be more work done there. In my opinion.

Mining has created over 31,000 jobs and contributes 4.1 billion annually to the GDP. A huge number of these facilities are being built in rural parts of the country, creating real economic growth for communities that have been left behind.

And over 43 billion in AI and data center contracts have been built on top of mining infrastructure because these sites already have the power, including that AI workloads need.

And as a brief note there, I think it's really important to note that when a bitcoin mine sets up and it is building and is operational, and an AI data center comes in and takes over that infrastructure, that is actually saving ratepayers and also taxpayers money. And I'm happy to answer questions about that later.

And Mr. Porter, I'm going to interrupt your overview and setting the context of what crypto and blockchain actually is. We do have the controller, as you mentioned on video call, she does have another engagement to get to.

So we'll put a pause on your overlay, have her give her remarks, ask her questions, and then revert back to you.

That sounds great. Chair, would you like me to stay seated here? You can stay there.

That's fine. She'll be on tv, obviously. Thank you, sir. Yep, absolutely. And Madam Comptroller. All right.

Can you hear me okay? Yes, thank you. All right, thank you very much, colleagues. I thoroughly enjoying that presentation. Thank you for just giving us a base level on the types of blockchain technology that is out there, but formally. Good afternoon, everyone. My name is Malia Cohen. I'm the state controller.

And thank you, Chairman Valencia and Committee Members, for just giving me an opportunity to provide you an update on the implementation of SB822, which is a Senator Becker Bill, which relates to unclaimed property and virtual currency.

Now, I'm particularly pleased to be discussing this topic during Unclaimed Property Month, which is a time when we remind Californians that billions of dollars in forgotten assets are waiting to be reunited with their rightful owners. As you know, my office administers California's Unclaimed Property Program. We collect unclaimed intangible assets.

We safeguard them and work diligently to return them to their owners. State law covers all intangible assets, assets such as bank accounts, stocks, insurance policies and trust interests. The type of assets that are in circulation are always evolving, as we heard from the previous speaker.

But with the signing of Senate Bill 822, we have the processes and guidelines in place for how to manage digital assets as well. Unclaimed property and SB822 I want to give you kind of a historical overlay.

The foundation of California's unclaimed property law was established in 1950595565 years ago, long before the advent of Bitcoin or blockchain technology, and probably long before the advent of all of us in this room. The law was therefore silent on how virtual currency could be treated when it becomes abandoned.

And without clear statutory processes, forgotten or otherwise abandoned, digital assets simply remained with the holders indefinitely. So there was no defined pathway for reunification. That is why I sponsored Bill that's why I sponsored Bill SB822.

The Bill created a clear legal framework for how abandoned digital assets were reported, I how they were safeguarded, and most importantly, how they were returned. It ensures that California implements best practices, which is our standard. It provides meaningful consumer protections and it offers practical workable guidance for holders of virtual currencies. But there's something that's very important.

Most importantly, it ensures that digital assets are treated the same way we treat any other property belonging to Californians. So if it is lost, we work to return it. So I want to provide a little bit of context. I want to talk a little bit about digital currency and SB822.

Bitcoin was introduced in 2009 and Erythrium followed in 2015. These assets have existed long enough for accounts to become dormant due to death due to relocation, forgetfulness or just General lost contact.

While thousands of additional tokens have been created, the majority of reportable assets under SB822 today will consist primarily of Bitcoin and and Erythrium, ethereum and roughly 20 other established digital currencies. Now, over time, additional asset classes including stablecoin, tokenized assets and non fundable tokens may also become reportable.

But SB822 was drafted broadly so that California's protections can keep pace with with the innovation. It is important to clarify what the law does and what it doesn't cover. So if an individual maintains a private wallet and personally controls their private keys, those digital assets will never become reportable as unclaimed property.

SB822 applies only to applies only to third party custodial arrangements, so such as digital asset exchanges or banks where assets are held on behalf of customers, these arrangements are unique. These arrangements function similarly to brokerage accounts.

Based on our review, account records from several major digital asset exchanges have identified more than 1 million accounts but belonging to California residents with no owner initiated activity during the three year period ending June 30, 2025 and at the time of the review. The aggregate value of these dormant $100 million.

The market may fluctuate, which it naturally does, but our responsibility doesn't. SB822 places strong emphasis on outreach, strong emphasis on due diligence before any assets are transferred to the state. And in fact the statute defines quote contact end quote very broadly.

So if an owner logs into their account even once during a three year period, that action prevents the account from being deemed abandoned. The goal is clear. We want assets to remain with their owners. Whenever possible, digital asset holders must conduct outreach. They must. Outreach includes certified mail for accounts valued at $50 or more.

However, email email outreach will almost always occur first, and we strongly encourage holders to exc exceed the statutory minimum. The requirements in SBA 22 represent simply a floor, not a ceiling. And experience from other states suggests that effective outreach can reduce abandoned accounts totals by as much as 50%, particularly among higher value accounts.

So for accounts that remain inactive, holders file a preliminary notice report within my office. And before any transfer occurs, the state comptroller's office conducts its own outreach, including address verification and coordination with the Franchise Tax Board.

So additionally, our review indicates that Social Security numbers are on file for approximately 80% of these accounts, significantly enhancing our ability to locate the owners. Only after these combined efforts would digital assets be transferred to a state contracted digital asset custodian. Selecting the custodian is going to be one of the most complex components of implementation.

While many firms provide digital asset custody, quite frankly none have prior experience in managing unclaimed assets. Unclaimed digital assets within a state program. So what we suggest is we must ensure regulatory oversight, insurance protections, indemnification of the state, and full compliance with California contracting standards. Custodians must also be licensed by the Department of Financial Protection and Innovation.

At the same time, we are building internal procedures from the ground up. No state has fully implemented a comprehensive unclaimed digital asset program. We are on the cutting edge, developing reporting instructions, claims workflows, database adaptations, FAQs, training materials and evidence standards for digital asset claims.

We're also collaborating, collaborating with the state of Oregon, which is several months ahead in its development efforts, to leverage lessons learned and to leverage lessons learned and to avoid us in recreating the wheel. When this program became fully operational, we anticipated a significant increase in claim activity.

Digital asset claims could increase our annual claims volume by as much as 75,000 in the first 12 to 18 months. And that is why careful implementation really matters. SB822 positions California as a national leader in consumer protection in the digital asset space, but it also brings clarity to holders. It provides transparency, and it also provides due process.

It ensures that innovation does not and will not outpace accountability. Technology is ever evolving, and financial products are also evolving. But the principle must remain content. If it belongs to Californians, we will safeguard it and we will work tirelessly to reunite it, reunited back to its rightful owners.

So, once again, Chairman Valencia and the Members of the Committee, thank you very much. I want to acknowledge that with me today in the chamber with you to answer technical questions are Ted Lambert. He is the Acting Division Chief for the Unclaimed Property Division, and Lyndon Lehman, Unclaimed Property attorney and consultant with over 40 years of experience.

And thank you very much for hearing me out.

Thank you, Madam Comptroller, for giving us an overview of SB822. Really want to commend your leadership on that particular issue as you expand into this space, I have full confidence that your office will do an incredible job in ensuring that consumer protections are at the core of this Bill.

As you stated, the point of this is to provide the consumer with the protection it needs in the case that there is a disconnection with these assets. And during the process, it was brought to our attention that there was some misinformation out there. And it comes with the territory, right?

When you hear government is trying to overtake a personal asset, whether it's a digital asset or an actual physical asset, there is concern. Right? But this policy was created to ensure that as much as government can do possible is done to get the asset back in the hands of the consumer.

And in addition to that, ensure that the asset is held in its original form. Because again, we're here to provide a service to our residents and consumers.

And the last thing that I would want to see or allow in this role as Chair of Bank and Finance, is for government to overtake a personal asset, a digital asset, in this way. So thank you for your collaboration.

Appreciate the opportunity to continue to work in the space with you, and if both of your team Members can join us at the podium to answer some technical questions. I'd appreciate that. Thank you.

Thank you.

Before I get into my questions, do any Members of the Committee have any questions for the Controllers team?

Just because I'm curious, wondering, do we have any idea what. What kind of unclaimed property exists in this realm? And do we have an idea? And then, like, how is. How. Have you guys tracked it or calculated that?

Yeah. So there's a. Thank you for having me here today. So there's some audits that are going on right now, and I'm gonna hand it over to Mr. Lyman to talk about the audits that are going on that kind of provide some of the background on the numbers that we're projecting.

So Controller made a reference to brokerage accounts, and although there's a lot of difference between a brokerage account and an account in a cryptocurrency exchange, there's a lot of similarities as well. And I think, for a purpose, discussion kind of think about the two as analogous. So a person can have an account with a cryptocurrency exchange.

That account may be a single wallet or multiple wallets, depending on the type of asset, but there is literally an account, and that account can have a couple different things in, can have coins in it or otherwise digital assets. And it can also have what's just called a fiat balance.

So in order to buy virtual currency, you've got to Fund your account. People sometimes Fund the account and then something happens and they just leave the money there, or they sell a digital asset and the proceeds of sale come into the account and they stay there. So there's a mixture of cash and coins.

And as the controller mentioned earlier, right now, just because historical reasons, Bitcoin and Ethereum being the oldest coins, they're also the ones most likely to be abandoned. There's been tens of thousands of coins come onto the scene in more recent years, but a lot of those haven't been around long enough to become abandoned yet.

But in time, that will be, I think, a challenge for the state because the value of these is very volatile. In the future, there'll be a lot of coins with little or no value. And sort of sorting those out and then how do you set up procedures, State actually take custody of those?

Do they leave them with the cryptocurrency exchange? What are the rules for outreach? When something really has no value, do you want to put people to the trouble of claiming something that's de minimis value and such? So is that responsive to the question?

Yeah, we don't know essentially what the number is though. Right.

We have some preliminary numbers from the entities that have undergone examination and again, those fluctuate and they're also what we would refer to as pre due diligence. So again, as mentioned before by the controller, the primary responsibility for locating missing owners falls on holders. They have the relationship with the customer, they have the personal information.

They have lots of means to do outreach. And so these numbers are still very raw. Until such time as California has a custodian in place, it'd be premature to do outreach because that might be two months, it might be six months, it might be longer.

So you kind of want to time the notification with know somewhat immediately prior to when a shooting might actually take place. So there are preliminary numbers, but again, some of those people may be easily found. A lot of them won't.

So we know some numbers about average account size, you know, what accounts are below a certain number that make up the assets and such. So yes, we do have information, but it's so preliminary because that outreach, which will result in a lot of folks being found and their accounts no longer being named, abandoned.

Coming off the findings, what's the process and timeline for that in terms of custodian?

Yeah, so right now, since this was enacted, we have done an RFI with potential custodians who would be interested. The next thing we're doing is pending funding from the BCP will be going out for a bid for a contractor to come on and bid to build the program out for us.

We're projecting to start working on bids for an actual custodian later this calendar year. So end of 2026, early 2027, to be in place by June, June 2027.

And just for understanding, with unclaimed property, the timeline of the notice period is in will be November of this year where we'll find out where those digital assets are for the that could be potentially remitted to the state.

We send out notices January, February, March of 2027 and then the remittance period will be June 1st through June 14th of 2027. And that's when a custodian would need to be place in order to run the program.

Right. Thank you.

Committee Members. As we recall, a couple of weeks ago, we actually voted to pass a resolution on unclaimed property.

And as a matter of fact, I was sitting in the chamber after I had presented the resolution and one of the reporters that was standing off to the side asked me to come over and showed me in real time that they had unclaimed property, which I thought was extremely cool and timely considering the resolution that had just passed.

So I do believe that in the near future these digital assets will be of that scale. And this is the first step in implementation that process as well as it was alluded to, whether it's, whether it's the, the different types of cryptocurrencies or tokens, value will be added.

And because of the sheer number of transactions that will be taking place, it goes without saying that there will be lost property that the government will have to then be able to hold and process for the rightful owner. And this platform will do just that. Assemblymember Shalva, do you have any questions for awesome.

If you could just go into a bit more detail regarding what, what will count as accessing an account? Right. You have that three year window, but what will actually qualify you as connecting to that account? Number one.

And then number two, will activity in one digital asset account protect other digital assets held by the same user on the same platform from the government acquiring it?

Sure, I'm happy to address that. And sort of, I think it's easiest to work backwards because Senate Bill 822 has a series of actions that would constitute activity or contact, but then at the end it says, you know, and any other action that would exhibit the owner's awareness of the existence of the asset.

So I think that that's really key. So if you can, you can go and everything sort of rolls up into that. Right? So the objective person looking at this and saying, okay, this action happened, does that indicate that the person actually knew that they had this account? And so if it's aware, it's really about awareness.

It doesn't have to necessarily be a specific action so much as do we have. Thank you. Can we tell for sure that this person knows he can exist? Because if they know that it exists and you know that they're there, there's no reason to disturb the account.

So that is sort of like the overriding concept in terms of what constitutes activity. But in terms of the specific question, what we would call cross referencing accounts is applicable and I think it even goes beyond other virtual currency assets.

So if it's BNY Mellon and someone has a virtual currency account at BNY Mellon, but they also have another account at BNY Mellon, then that's cross reference and that counts as activity across the board. It's going into the account, logging into the account again, as the controller said, only once every three years.

That's what we're looking for is any sign of activity. And when that happens, that resets the clock.

So you go in, you look at your account, you just check your balance, you just log in and you do that once and you're back at day one in terms of inactivity, making a deposit for cash into the account, making a trade, buying, selling, giving a change of address, adding a beneficiary, literally any kinds of those actions.

Again, because this is all being done through the Internet. It's all, it's all traceable. Every transaction appears within the account history and you can see that. So the actions have to originate with the owner of the account. The exceptions being again, the cross referencing of account.

And then again, just, you know, from a objective analysis, does it, does it appear that this person knows the account exists? And if you can tell that they're out there and they, and that knowledge is clear, then you don't disturb the asset.

Thank you. And something that has been a theme for the Assembly this last cycle has been accountability and affordability. And with the state budget being what it is this year, a question does need to be asked, in my opinion, and do we have an anticipated cost for the service?

So the, obviously there's a lot that goes into this. The custodian aspect of it is still being worked out. I know Oregon might be further along and trying to figure out what that is.

But when it comes to the positions that are required to do the reconciliations, to do the claim approvals, the claim review, that type of information, right now we're asking for 19 positions related to the work that's associated with this.

Just from those preliminary numbers, it looked like in the first year it would almost double the size of our unclaimed property program. There has been an update to the numbers, so we're taking that back and looking at what the true impact would be. But additionally, we now have an electronic.

Unclaimed property system where in the past we had paper. So through that unclaimed property system, there are costs associated with validating the individuals that are claiming property. And depending on the type of approval that is used in the system, it could be anywhere from 35 cents to $1.25.

So we're taking that into account with the claims that we're projecting out based on prior years of, of people claiming by reporting year. So based on that, we've built that out into the BCP. And I think initially it was somewhere around $10 million a year. I think it was 10 or $15 million a year.

But there is, you know, there could be changes to that based on the updated audit numbers.

Thank you for that. And you know, the concept of crypto and blockchain is efficiency and minimizing costs to use the actual system. Right. So let's just keep that in mind as well when we're evaluating and regulating the technology. Assembly Member Scalvo just on the point.

You were making about any kind of activity and an account would count as re upping those three years. How, how would the account holder have documentation of that? Like if you, if you just simply log in, right. How do I document that I logged in and that the clock restarts?

So the, the reporting responsibility is on the virtual currency exchange, or what the law would refer to as a holder, digital asset holder. And it's the holder that makes the determination whether or not the account is abandoned under statute. So those records would actually be part of the account record history at the holder.

So the owner really needs to do nothing. The onus is on the holder to accurately reflect when there's activity. So if you log onto your account, that's part of, again, in terms of data security, you always have a record of that person logging onto the account account, the fact that they use the correct iD.

You also have a tracking if people tried to log onto the account with an incorrect id. So that's all logged on with a digital timestamp.

So if you're, you know, depositing to the account, you would probably have some record of the transaction on your end, but there would also be a receipt on the holder end, but the holder's preparing the report. So it's always the holder that's looking at their records.

In terms of, okay, did we measure activity, when did we have contact the person, what date was it and such. So in terms of doing the examinations, I think, you know, with a typical holder, there were 60 to 70 different actions that could constitute activity or contact.

Part of the job of the auditor is to look at those and say which of those are owner generated and which of those are not. So you can have things like systems maintenance, systems conversions, which could artificially update activity, but would not be owner generated.

But the whole plethora of actions that a person would actually take is recorded by the holder. And then the holder looks at that and says, okay, we've had no activity for three years, or we have had activity for three years.

What was the nature of that activity and is it such that its owner generated that it would rebut a presumption of abandonment?

I guess as a owner, I would be an owner or a holder. I'm A holder or an owner.

You're an owner?

I'm an owner, yes. Okay. As an owner, I would, I guess I would just want my own documentation. You know, I mean, it's a little bit of a wild west out there in this new emerging market. And, you know, and some of these wallets are just shutting down. Right.

And so being able to have some kind of documentation seems like an important piece of that. And I don't know if there's, I mean, maybe that's a policy, you know, decision to require a certain amount of documentation that can be captured by the owner.

Yeah. So I think, I think there are ways. I mean, I think the typical course, people don't think about it. Of course, no one, no one wants their property become abandoned. They don't think about it at all.

But, you know, contemporaneous with logging on, you could do a screen print, you know, you could show that on this date I went into my account. You know, I mean, that's sort of, I guess, a protection against erroneous as cheat. But the other safeguard that you have before that even happening is due diligence.

So if you're actually out there, you know, efforts need to be made to contact you. And what the industry is doing is the comptroller referenced this, is that they're first sending emails. I mean, that's an economical way to try to get ahold of people.

It's also very easy for people to respond to the email and say, yes, I'm here, you know, I'm not, I'm not lost. I haven't transacted for a while, but I'm here and I know about my account as a precursor to mail, which is expensive and is manual and is messing all those kinds of things.

So there's going to be a couple of efforts. I mean, probably three minimum in California. As comptroller said, there's nothing wrong with, you know, if a holder wants to send a push notification or do a telephone call.

I mean, I know there's a lot of concern about fraud and such and those kinds of things, but there's no limit on what kind of outreach can be done.

So to the extent that there's a failure on the part of the holder to accurately keep records of contact, you have due diligence, you have outreach to say, you know, then the person can say, hey, again, I've had activity. I'm not, you know, what's happening, you know, so, you know, wouldn't say that would never happen.

But hopefully due diligence is going to address a situation where a person in fact is active and is out there and can be found. Welcome.

I will say that I find myself logging into my exchange more often than I probably should just to see the updates on price fluctuation. So that would also. It's ok. It's human nature. Sure. Thank you. Any other questions from Committee Members? Seeing none.

Thank you both and thank again the controller on my behalf for her participation and collaboration. We will revert back to the context setting by Mr. Porter.

That was great. Well, we do. We work on unclaimed property in a lot of states, so it's fun to get to hear the more technical side of it. Just to get a little more information on the unclaimed side though there is one exchange that we're aware of that has roughly $130 million in unclaimed property.

So that, you know, is nationwide of course, but hopefully that's some hopeful context for the Committee to consider in the process. Okay, let's go jump through this real quick.

Again, this one's super counterintuitive when it comes to digital asset mining, but the reason why I bring it up here in California is because it's incredibly relevant to the energy dynamics here in California.

And the dynamics here lead to an environment where very smart, sophisticated policy could unlock significant amount of wasted energy that is currently occurring here in the state. And when I talk about wasted energy, when I talk about wasted energy, I'm referring to the excess of wind and solar you have. The state is on track through the Kaiser.

You can go to the live website anytime. I've been, I've been tracking it for four years now and it is a chart that tracks how much wasted energy comes from wind and solar.

And when we talk about wasted energy in the context of wind and solar, what I mean to say is you have times when sun is up, there's lots of solar being generated and there's no one buying it.

You have times when the wind is strong, lots of wind energy can be generated, but nobody's buying it because the grid is a, is a dynamic where it's a supply and demand. And if there's not a lot of demand for power at the moment it's being created, it's curtailed, it's wasted.

The state of California in the Caiso grid is on track to curtail about as much energy as the bottom hundred countries use on an annual basis. So it's a significant amount of power. And what bitcoin miners can do is they can co locate right next to wind and solar farms.

In fact, I've participated in these types of conversations. They can monetize 100% of the excess energy from wind and solar, providing a source of revenue for wind and solar providers who oftentimes struggle to make ends meet. Whether it be because of the demand and supply demand issue or because of a lack of physical infrastructure.

We see a lack of, of high voltage transmission lines in this country for a number of reasons. Needless to say, I'll end by saying bitcoin miners can co locate right next to those wind and solar farms, monetize all of that energy and at the moment when the energy is needed by the grid, they can also wind down.

And make it available. So incredibly powerful technology. Let's move on. All right, just going to jump down here. So something that's super important to Satoshi action to us as an organization, me personally, is not only benefiting from the technology, but also making sure that we analyze the risks that are associated with the technology.

We've, we've, we view ourselves as a pro consumer, pro innovation group. We find it very important to balance those two facets. There are six key risks to understand in this space. One is volatility. Even bitcoin, which is the premier digital asset, has seen up to 50% drawdowns at times. It's even experienced one relatively recently.

There's been regulatory uncertainty. Unclear rules push businesses to other states, other jurisdictions, other countries. There's a cybersecurity component. Exchange hacks and exploits have caused billions in losses over the 17 year history of bitcoin. And then we have massive education gaps. Consumers and lawmakers alike need better foundational knowledge, which is exactly why hearings like this are so important.

And I thank the Chair for putting it on and inviting me to speak. We also have consumer protections. Transactions are irreversible in the digital asset ecosystem. Now you can of course find a way to go get them after they've been sent.

But unlike the traditional financial system where a bank can just be like, hey, nope, we're going to stop that transaction. That can't happen in the digital asset ecosystem is not possible. You also have illicit use.

Although there's a part I would like to talk about here in a moment, dispelling a little bit of the myths around illicit use. But in the eyes of the public, digital assets are used for crime, they're used for scams. That's a huge persistent problem. And then we need to overcome it through education.

But the answer to these problems is not avoidance, something we had seen in the past. It's Clear, well crafted regulations, thoughtful regulations. Thoughtful policy that can help address these concerns. So let's jump into the four misconceptions. Crypto is primarily used for crime. I hear this one all the time, all across the country.

This is the most important one to dispel. The fact is, less than 1% of all transactions. The fact is that less than 1% of all transactions are illicit. The FBI and IRS rely actually, in fact, on blockchain analytics to track and recover funds.

It's actually, in fact, one of the worst tools for crime and one of the best tools for law enforcement because it is incredibly transparent, trackable and traceable. They've taken down many criminal organizations, rings, you name it.

Even terrorist organizations, terrorist donors, I should say, because of the fact that they use digital assets now, it's easy to use, so that's why you see crime happen. But oftentimes, criminals stop using it because they quickly get tracked down, traced, and end up having to face law enforcement.

And again, happy to answer any questions about that area later on. Myth number two, mining is bad for the environment. I think I covered that one plenty enough just a moment ago. Myth number three, this is too new for serious policy. We're 17 years in, 47 states have already enacted digital asset regulations.

We've seen federal policy move and pass into law. Myth number four should be on this screen. Myth number four, only speculators use crypto. The fact is, JP Morgan, BlackRock, Fidelity, Visa, and MasterCard are all building in this space. I mentioned many more earlier that are building, including BNY Mellon.

The largest financial institutions in the world are building right now in the digital asset ecosystem. Let's walk quickly through some of what's happening at the federal level. So. So we've got the passage of the Genius Act mentioned earlier. You'll hear about it quite a bit. This created a federal framework for stablecoins.

Stablecoins are digital assets that are pegged one to one to the dollar. And what the Genius act did is it created a powerful policy framework to regulate that ecosystem to ensure that they're used safely, sustainably, and that they can be also innovative for the ecosystem.

I think the really interesting part about the Genius Act passing into law is that stablecoins that have conformed once all the implementation occurs. Stablecoins that conform to this law arguably would be safer than money kept in the bank account, because when you hold money in a Stablecoin account, now they're banned from rehypothecating.

They're banned from doing anything with your money. They can't invest it in any other way other than put it in US Treasuries, which are some of the most safe and sound investments that you could possibly make. So all your money is super safe and they mandate one to one redemption.

So if you put a dollar in, you want your dollar out, you are legally required to give that person their dollars back. Second bill that's really important at federal level is the Clarity Act. This regulates whether something is a commodity or security. It passed the House. It's been very significantly held up in the Senate.

I have friends, I live in D.C. but also friends in D.C. that spend a lot of time on this and they would say that it's probably 20-30% chance right now that it passes in this Congress, but things can change that. People felt like it was 60% chance a month ago.

So you also have a Bitcoin reserve Bill, which I think ties into something that we're talking about here. There's a Bitcoin Bill, Bitcoin reserve bill that was introduced buying a million bitcoin, holding it for 20 years to pay down federal debt. Happy to share more about that later if there's any questions around it.

And then you also have at the federal level, tax policy super critical. Lot of focus on this. They want, folks want there to be a de minimis exemption which is about a $200 exemption for capital gains so people can buy coffee, buy groceries without having to track and trace every single transaction.

Briefly, we're going to look at what's happening at the states. I'm not definitely not going to go through every line here, but some key highlights. Digital asset reserves have passed into law in three states. We've seen digital rights bills pass into law in six states. We've seen comprehensive licensing pass into law in four states including California.

We've also seen a significant amount of UCC modernization, modernization around digital assets in over 20 states, I believe even over 25 states now. So this is happening quickly, fast, all across the country.

And again, this is why I think hearings like this are so important, so that the state can keep pace with what's happening at the state and federal level. So California has done a lot, it's been leading. It can do even more in my opinion, as mentioned, this is a fast moving space.

We've seen the default legislation pass into law which will take effect in July. We've also seen, as mentioned was discussed here Quite a bit, SB 822, which established clear rules for unclaimed digital property mandating that assets be transferred in their original form. On the ecosystem side, we are seeing Coinbase and Ripple calling California home.

So not only are you making incredible progress on policy, but you have some of the largest companies in the entire ecosystem here. In fact, over 1500 blockchain companies exist in California alone. 27% of Californians, compared to 21% of adults nationwide engage in the digital asset ecosystem. So you outpace the national standard.

The question is not whether you should engage, but the fact that you already are and that I believe you should continue to keep building on your digital asset policy initiatives. So last, last part here and apologies for going long and I appreciate the Chair for giving me the time.

There's a number of different digital asset policy opportunities that I believe the state should, should consider, should pursue. That includes digital asset rights. Just giving people the basic right to access this technology. A state digital asset reserve. In my opinion, we should use a sheeted property for that at zero cost to the taxpayer.

And that is what my second presentation is going to be about later. And then you also have state banking digital services. I think we want to make sure that state banks keep pace with federal banks. Federal banks are all allowed to start custodying using digital assets or integrating them at. At force.

Because the OCC is fully behind this and has been behind it over the last year. I think state chartered banks and state credit unions should also keep pace with that activity. We want to make sure state charters stay competitive. There's also the opportunity to build a stablecoin framework in the state.

And I believe also firmly that there needs to be public education. So many people are so far behind with where this technology is today. And then lastly, an illuminating burgeoning area of interest is the intersection of AI and blockchain. Using blockchain to validate facts and information is an interesting cross section.

And also the mining side, as mentioned before, the Federal Government has moved, other states have moved, the institutional world has moved. California has the infrastructure, the talent and the market size to lead not just in regulations, but in responsible innovation.

The goal is to make sure California has the frameworks to protect consumers, attract investment and stay ahead of the curve. Thank you. And I look forward to your questions either now or later on.

Thank you, Mr. Porter. We will ask questions on the overview after the next presentation. We'll move on now to the second panel. And it was one of the points that you discussed, which is the Digital Asset Reserve Fund.

Dennis, that's you back to back?

Yeah, you're the expert.

That's see here. Okay. Is the other one up? Got that one? Yeah. All right. No water, too. So I apologize if I start coughing. Well, thank you for having me back. It's been a long time since I've seen you all. So now we're going to shift to one of the specific proposals.

The case for a California Digital Asset Reserve. Why? What it is, why it matters, and why this is the right time to start building. Oh, that is so kind of you. I'm actually gonna.

Okay, let's start with the big picture. This is just an overview, just to give you a quick roadmap. And I'm trying to keep this one shorter. It's very hard sometimes to do these presentations less time than I did, but I promise this one will be a little bit shorter than the last one.

I'm going to cover nine key points today. The core argument is straightforward. Under SB822, which Members of this Committee and the comptroller's office played a significant role in passing, California is now on a path to hold unclaimed digital assets in their native digital form through a qualified custodian.

I am before you today to propose that instead of simply holding them passively, the state managed them strategically at zero cost to taxpayers. I'll start with why strategic reserves matter, then walk through California's budget challenges and how reserves are losing real value today in California.

From there, I'll share research showing that even a tiny bit of of a Bitcoin allocation. Of course this can happen with other digital assets, but there was some research that we did that focused on Bitcoin. But a tiny Bitcoin allocation would have offset inflation for the state protecting reserves.

Then we'll look at what the Federal Government and other states have done. And finally I'll lay out a cost neutral framework built entirely on infrastructure California has already put in place. So let's start with some context. Strategic reserves are well established tools of the government, whether they be at the state level or the federal level.

And they exist for clear reasons. They serve as shock absorbers against recessions or untumeous times. They defend currency stability, they smooth volatility in critical markets, they secure supply chains, and they maintain national security readiness. At the federal level, reserves span every major category. Gold, petroleum, uranium, helium, medical supplies, agriculture commodities, and now digital assets.

And as a note, we even have a cheese reserve in this country. So we've got a lot of different types of reserves. As dozens of states begin introducing and passing. As dozens of states began introducing and passing digital asset reserve legislation, the Federal Government responded.

In March 2025, a federal strategic bitcoin reserve was established, as well as a digital asset stockpile which essentially took the criminal, criminally forfeited digital assets and just said, hey, we're going to keep these things. We're going to hold onto them. We're not going to liquidate them. Which was the process.

Before there was a number that was thrown around for a while, I can't remember, I think it was roughly like $20 billion where the government had been taking these digital assets and liquidating them and auctioning them off and turning them into cash over like the last decade.

And if they hadn't done that, they'd had, I believe it was roughly $20 billion that they'd have an additional purchasing power. But don't quote me on that. Digital assets have joined the strategic toolkit officially at the state and federal level. So why does California need to pay attention to this policy area?

California is facing projected deficits of 10 to 20 billion dollars through fiscal year 2028-2029. Over the last two fiscal years, the state has withdrawn 12.2 billion from the budget stabilization account. Now, these reserves aren't sitting in cash. They're held in treasuries and oftentimes low risk bonds. But even those instruments are not keeping pace with inflation.

The dollar has lost roughly 25% of its purchasing power since 2018 alone. That means the reserves are shrinking in nominal terms and losing value at the same time in their ability to purchase goods. Let me show you exactly how that erosion plays out.

This chart on this slide shows what happens to the dollar held as cash from 2018 to 2024. Adjusted for CPI inflation, it starts at 100% and ends around 75%. That's a 25% loss in real purchasing power in just seven years. You can see the shaded red zone on the chart.

That's the 2021-2022 inflation surge where its purchasing power dropped from about 90% to 82% in just two years. That's where the damage accelerated. An empirical counterfactual study analyzed real data structures across all 50 states.

The study found that a 100% treasury strategy, which means not holding it in cash, you're holding it in Treasuries or bonds, still produced a negative 1.48% compound annual growth rate in real terms on a $10 million investment. That's roughly almost $1 million being lost over seven years just from sitting on it alone.

Cash is not a safe haven. It is a slow bleed. And this is the problem. It's structural. The next chart shows also the long term yield trend. This chart shows the average PMIA yield by decade. In the 1980s, around 9%. By the 2000s about 1.5%.

The 2000s bumped up to 2.5%, but that's elevated by post Covid rate hikes. It's likely to decline in the future. California's 14.4 billion BSA and $23 billion in total reserves are earning yields that don't keep pace with inflation, the state is losing millions in real purchasing power every single year.

So he asked, what if states had diversified even slightly? This goes back to the study that I mentioned earlier. That question led to a study which we at Satoshi Action did alongside Dr. Murray Rudd.

We conducted a counterfactual analysis of all the 50 states rainy day funds or similar types of funds from 2018 to 2024 using real state data, real estate empirical information, cash flows, historical as well as the historical bitcoin price and CPI CPI data. So this isn't theoretical, it's built on actual numbers.

The headline number for California, a 10% Bitcoin allocation, would have produced a 104.8% improvement over just holding cash. That means the fund's purchasing power would have more than doubled compared to the status quo. But you don't need 10%. At just 3%, 48 out of 50 states fully beat inflation.

And for California Specifically, just a 1.7% allocation to Bitcoin would have fully combated and offset 100% of the loss of purchasing power from inflation, a tiny sliver of the overall fund. The next slide has the 50 state breakdown for the committee's reference.

Now, it's pretty small, hard to read, so I'm definitely not going to read through the whole thing, but every number shows the percentage of improvements over holding cash. You've got 33%, 5%, 10% green bold means the state beat inflation at that allocation level. You can see California highlighted. At a 3% allocation, the improvement was over 45%.

At 5%, 62% and at 10%, the fund more than doubled in real value compared to holding cash. I won't read every row, but this wasn't a fluke. It worked across all 50 states with different fund sizes and cash flow patterns. Now let's take a look at where the Federal Government has taken action on this issue.

As mentioned before, several key federal actions have taken place broadly in the digital asset ecosystem. Both a Bitcoin reserve and a broader digital asset reserve were established in the treasury, consolidating forfeited digital assets into permanent strategic holdings. In the Senate, the Bitcoin act, which is a Bitcoin reserve bill proposing acquisitions of 1 million Bitcoin over five years.

And of course, we mentioned the genius act before previously being passed in July with broad bipartisan support, the first comprehensive federal stablecoin framework, and also the importantly, the SEC shifted from an enforcement first posture to one focused on innovation and guidance. The Federal Government is treating digital assets as a strategic Imperative.

Now let's talk about where the states have led. Three states have already signed digital asset reserve legislation into law. New Hampshire passed HB302, which allows up to 5% of public funds to be invested in digital assets above a $500 billion market cap. That market cap number is incredibly important.

We don't want lawmakers or the states investing into low quality digital assets. The market cap number of course, can shift, but we don't want it to be something that's a zero. The model uses tax. That model uses taxpayer dollars. Texas passed SB21 committing $10 million in state funding.

So they actually went even further than New Hampshire and appropriated funds. They've already actually even purchased 5 million in BlackRock's Bitcoin ETF. But that model also uses taxpayer funds. Arizona did something a little bit different and interesting, which I think is pretty similar in ethos to what I believe the state of California should do.

Arizona passed HB 2749, which retains unclaimed digital assets in their native form and uses staking revenue. I can answer some questions around how that works, but essentially think of staking revenue like putting your money in a Treasury account and you are generating yield.

They generated yield with the Crypto and they used that yield to be able to buy Bitcoin for their reserve. And beyond those three states, states like Massachusetts, Michigan, Maryland and Florida this year are all working actively on their own digital asset reserve legislation.

I just was actually in fact in California, excuse me, in Boston, in Massachusetts, doing a similar presentation with the lawmakers there. California's proposed model takes a different approach. Retaining the proposed model would take a sheet of digital assets as part of the reserve while remaining entirely cost neutral.

Let me explain how the cost neutral model would work in theory, on the left side is the challenge. Allocating General Fund revenue to any new asset class is tough, especially in a budget environment like the one that is existing currently in California.

New Hampshire and Texas took a different approach where they did use public funds, they used taxpayer funds. But I believe that may work for those states but not necessarily work for California. Any framework here must, in my opinion, avoid addition of pressure to the deficit.

On the right side is my solution or a solution that I believe would be useful. This is a the fund is entirely funded through unclaimed digital property is sheeted under SB822.0 General Fund Appropriations no tax dollars at risk, taxpayer dollars at risk.

Operational costs are covered by the fund itself self sustaining from day one and through appropriations a portion of the funds assets can be deposited into the General Fund, making it revenue generating. It's also important to note that original property owners through this proposal, would still be able to recover their assets through the existing claims process.

This doesn't change that whatsoever. And the good news, California already has the infrastructure to do this. On the regulatory side, DFAL AB39 takes effect July 2026. It creates that licensing framework for digital asset businesses. DFPI is already established as California's digital asset regulator.

You have the controller's office who came in here and who has been a big part of this process in passing SB822 and also managing the process of implementation. They'll be working through custody and qualified custodians. On the institutional side, as far as the capacity of the state to manage assets, you have CalPERS with over 500 billion.

You have CalSTRS with managing 392 billion. PMIA already has strict standards for reporting liquidity and safety. And California is home to more blockchain engineers, digital asset companies and fintech talent than any other state in the country, probably anywhere else in the world. The expertise to do this well isn't something California needs to go find.

It's already here right now. So what specifically would the amendment or a possible amendment look like to SB822? There are four key components to a potential proposal. First, how it works. Under existing SB822, unclaimed digital assets are sheeted to the controller. Exchanges like Coinbase, Kraken and Gemini now transfer native digital assets to the state.

Estimates suggest a single exchange may hold over. I mentioned it early. Roughly 100 million, maybe 130 million in unclaimed property. The controller would convert these into high quality digital assets that meet a defined market cap. I leave that to most lawmakers.

Whenever we have these discussions, you know what they believe is a market cap that makes sense for their state. And then of course, deposit them into the reserve fund. Second, governance, an advisory board or some type of oversight would be incredibly important.

I think the controllers, the controllers office, the treasurer, the Legislature and the governor's appointees should all have some level of oversight. That board or oversight body should have a strong level of digital asset expertise, specifically expertise in digital financial asset investments.

Third, the revenue model through appropriations, a portion of the funds that are in the reserve, in the digital asset reserve can be deposited into the General Fund. So this is something that's different from theoretically all the other states, where all states are either using taxpayer funds or they are generating revenue from unclaimed property.

This gives the opportunity not only to potentially use the unclaimed property to create the reserve, but also simultaneously potentially sweep that into the General Fund in appropriations and also in case of an emergency. So administrative costs would also of course be covered by the fund itself, not the General Fund.

And fourth, custody licensed custodians would be evaluated on security, key management and regulatory compliance. Now let's move over to the last, last slide. One before the last slide, I believe. Now let me address the risk management head on. Risk is a fair question. It's a fair problem.

We need to pay attention to it, especially when we're talking about funds and we take it very seriously at Satoshi Action. This framework addresses four categories on market risk. The fund would only hold assets that meet a market cap eligibility threshold.

That means the most liquid, most established digital assets, miscellaneous tokens received through a shipment could get converted to higher quality digital assets and the state retains the ability to liquidate in a fiscal emergency. On custody. The framework requires periodic audits, multi signature controls with geographic distribution, and documented incident reports on operational risk.

The Fund is managed by professional investment analysts with advisory board guidance. And all costs are covered by the fund itself, so there's no General Fund exposure. And on transparency, regular public reporting, legislative representation on the board, legislative approval required for any transfers, and full compliance with existing state audit frameworks.

Let me show you how this builds directly on what's already in place. Step one is already done. SB822 was signed into law in 2025. It directs the Controller's office to hold unclaimed digital property in native digital form through qualified custodians. So that legal framework is already in place.

Step two is the proposed addition to that bill could possibly be an amendment to create the Digital Asset Reserve, define high quality digital assets, establish the Advisory Board and authorize strategic management. Step three would be operational. The controller converts sheeted assets to high quality digital assets, manages them with advisory board guidance, and reports quarterly through appropriations.

A portion of funds in fund assets can be deposited into the General Fund. The Committee built. This Committee built the foundation for step one alongside the Controller's office. The Reserve Fund is a natural next step, going from passive custody to strategic management.

Let me be very clear about what this is though and what this isn't before I go into closing. What this is not not spending taxpayer dollars, not rating the General Fund or PMIA, not speculative, it's not gambling, it's not replacing conservative investment standards, it's not removing oversight and not an unregulated experiment. What it is, is cost neutral.

Funded entirely through unclaimed property revenue generating through appropriations. A portion of funds can flow to the General Fund with direct government oversight and advisory board with legislative representation, subject to quarterly public reporting, built on California's own regulatory infrastructure and align with the direction at both the state and federal level. And of course the timing matters.

The momentum is here. The Federal Strategic Bitcoin Reserve is established. Three states have signed legislation into law. Bitcoin ETFs are approved and adopted by institutional investors. Major banks are integrating custody. The Genius Act created the federal Stablecoin framework. But there's a cost to waiting. California's reserves lose real value every year. New Hampshire, Texas and Arizona have moved.

Massachusetts, Maryland, Florida and Michigan as well as others are working on legislation right now. California risks being a follower rather than a leader on this issue, which I do not think is going to happen. There's also a risk that tech talent and blockchain companies continue to migrate or consider migrating to other jurisdictions.

And right now, unclaimed digital assets are held by the controller in their native form for a defined period. But without a strategic framework, those assets are eventually liquidated rather than retained for the state's benefit. California is the innovation capital of the world. A digital asset Reserve Fund is a natural fit.

It keeps sheeted assets working for the state instead of being sold off at whatever today's price happens to be. Let me close with this and wrap it all together. This proposal rests on four pillars. First, responsible diversification backed by empirical research across all 50 states. Second, a cost neutral revenue generating structure with no taxpayer dollars at risk.

Third, strong guardrails including an advisory board, quarterly reporting license, custody, defined asset quality thresholds and fourth, a strong foundation that's already in place. SB822, the Digital Financial Asset Law, DFPI, the Controller's Office and deep institutional expertise right here in California.

I respectfully ask this Committee to explore amendments to SBA to that would create a Digital Asset Reserve Fund in the State of California converting passive custody of unclaimed digital property into strategic transparent management for the benefit of California. Thank you and I look forward to your questions.

Thank you Mr. Porter. Appreciate your comments and thoughts on this particular topic. I wanted to provide you with some context in terms of and the public in terms of my passion behind augmenting the state's reserve funds.

Last year I introduced ACA1, which would modify and increase the Rainy Day Fund for a time when the budget isn't in its best shape and we would need to pull from those resources to supplement the gaps in the General Fund that provide services to so many Californians.

I firmly believe in the diversification of investments and in part why I am passionate about this concept as well. There's an age old anecdote that goes something like this, which is we should all try to plant trees of which shade we may not be able to enjoy.

And I think this here is something that we could all do for the next generation of Californians, whether it's augmenting the rainy day Fund for a more promising tomorrow or being creative and developing new ways to supplement future gaps and downturns. So I will hold on to my questions until the Committee Members engage, if they have any.

Just very quickly, thank you for all of that information. Wow.

Yeah, I'm happy to share the.

Yeah, that's what I was going to ask. You could definitely share those slides so that we can share them with our team. And obviously there's an incredible amount of work that this state can still do. And obviously I think that California is known to be a leader in many spaces.

And I think that when it comes to digital assets, we have to continue to figure out ways to lead. We're seeing other states doing more than what we've done. Never thought about doing some policy, but maybe. I think there's an incredible amount of work.

I'd love to stay connected and figure out what ways we can ensure digital inclusion is happening. I think making sure that we do protect consumers is fundamental. I will be very honest. I got Bitcoin many years ago when I was. I was just thinking about it as a, you know, kind of play.

Wasn't sure where it was going to go. And it's amazing. I know that obviously it's very volatile in some instances and these digital assets can be volatile. So I think that it is important also as people are exploring and going into the space, that they are educated.

And so I think we have some type of responsibility to figure out what that's going to be from the state's perspective to ensure that we are ultimately protecting the consumers. So very interested, Very fascinating. Obviously, so much work to do. I was. So I don't really have any comment. I mean, questions.

I have a little bit more comments. I was just actually in the small city of Mendota in my district a couple weeks ago, meeting with some of our local leaders, mayors and council members. And what struck me, I was at a Salvadorian restaurant. What struck me there was a kiosk of a Bitcoin. Of Bitcoin there.

And so I started researching because I was like, why do they have a Bitcoin kiosk in this random, you know, Salvadorian restaurant. And so I've learned a little bit of what El Salvador did. Obviously, there's been a lot of changes since I think, originally when they adopted, you know, their digital asset policy. And, you know, there's.

There's been some changes, but very fascinating to also see the dynamics, but between some of our immigrant populations, what's happening today, and maybe how digital assets are used as a way to ensure that when people are being sent from this country to their country of origin, they have easier ways to get their, you know, their digital asset or their financial assets if they're digital.

And so, anyways, I'm just. My head is spinning with all the information that you provided today. So thank you again for all of that, and I do look forward to figuring out how, through this Committee, we can continue to lead in this space. Thank you.

That's great.

Thank you. Let me put this back in here. Never mind a couple things. I want to thank the comptroller for the information. And I know that some of our folks do look at unclaimed property, but it's really confusing, if you will, how you're going to be able to connect this.

I was looking through the website, and you have to be very specific as to, you know, what assets are yours. I know they're not online yet, but. But that's. I still have a lot to learn on the Crypto market because it. I just can't wrap my head around it.

I'm not a millennial, and the fact that it's not anything that I can touch is confusing. So I can, you know, would like to continue conversations about what this is, but also to encourage people to start identifying. We were talking Assemblymember Schiavo. She says, oh, yeah, I have Crypto.

I put it in years ago and I've never touched it again. And, you know, and so I'm sure that there's a lot of people like that, but the information you provided is a lot. Thank you for it. We're reading and trying to do some online searches, but I think we need more education.

And I have had discussions with the Chair about, you know, for most of us, this is just brand new, but I'm glad that we're bringing it. And as Assemblymember.

Sorry I said, we are leaders in the country, and hopefully this is the beginning of some recovery and some, you know, possible legislation by the chair, not by me, because I have no idea what I'm doing, but, you know, to try and make sure that people do get you what they invest in.

You know, we all read that story about that guy and his, you know, crypto wallet in the dump in the landfill. Sorry. And. But I imagine that there's a lot of people like assemblymember shovel who just deposited money and you know, just never touched it again. And so something that's easy to understand and accessible.

And I know it, it's going to take a lot of work. But I want to thank you for, for all of the information and we have a lot of learning to do. So thank you.

Absolutely. Thank you for that. Assembly Member Rubio, just one closing question to really encapsulate some of the concerns that were expressed due to the downturns of the market. Right. And the regulatory framework. What statutory guardrails would you recommend during market downturns that would preserve your Reserve Fund status as a long term hedge?

Yeah, I think that's the most important component of building something like this is to think about it very much in a long term mindset. It's the same thing with real estate as the common comparison we make. If you real estate, you have boom and bust cycles all the time.

But when it comes to goes down, people are, most people that have any cash they're sitting on are thinking like, how am I going to buy this real estate for so cheap? Whereas like inversely that the opposite kind of happens in Bitcoin right now today and people's mind, oh, it's down, well, I don't want to buy that.

But the mindset just needs to shift and I think it just takes time for people to see it do that enough times where they finally are like, oh yeah, this is what I've been waiting for. So that should be the mentality of anyone.

And you know, the benefit of purchasing now is you can buy it cheaper than what Texas bought it for. So but in general, just the mindset needs to be long term and then also to protect against. Because the concern also is if it goes down, is it going to recover?

And I think that's why the high quality digital asset component, the market cap threshold is critically important because there are many assets that don't recover in the space. There's been tens of thousands of Cryptocurrencies throughout the history of Crypto, Cryptocurrency space. And every what we call a cycle, it happens roughly every four years. We don't know.

No one can really exactly figure out exactly why it continues to happen, but it does. We see about these market trends where it goes down every four years and then it recovers over the next three years. And every cycle that that takes place, a lot of things survive.

Bitcoin, Ethereum, you know, those types of technologies survive, but a lot of them don't and they never recover their price. And so I think it's, that's why it's risky to keep digital assets in like these very low quality types of digital asset format. I think that's, that's the key component to building something like this.

It's smart investments at the end of the day.

Yeah. I mean, are we talking penny stocks as a comparison or are we talking about solid, sound investments that are tangible and are time proven? Right. And I think that is the concept that needs to be incorporated when we're having these types of discussions.

In addition to how throughout history and finance there have been bad actors and schemes and situations where there has been fraud and tactics and tools and products that have not panned out. I think through every single evolution, whether it was checks, credit cards. Right. Digital currency, wire transfers, there has been some sort of abuse.

And unfortunately we're seeing that right now at all levels, including the highest level of government, which is something that I would like to ensure that California moves in a much different direction from, because I don't think that is going to be productive, not only for the societal benefit that this technology can provide, but just what it means for our institutions at this time.

So, Mr. Porter, in closing, really appreciate your time, your diligence, your tenacity on this very issue. I'm sure many more conversations to come ahead and I look forward to the future of digital currency and blockchain in California. With that, meeting adjourned. Oh, excuse me, not meeting adjourned.

We're going to allow a couple of minutes for public comment, if there are any. Thank you. Since I did not bang the gavel. Meeting is still going.

First there, Joseph Cholo, Executive Director of the California Blockchain Advocacy Coalition. I want to commend the Committee for their Ability to grow and expand their knowledge and digital assets in pursuit of innovation here in California, blending that with our protection of consumers, which we're known for here in the great state of California.

Also pleased to report that the SB822 has served as something of a model in talking to some of my contemporaries in the other states that lead blockchain associations. They reported back that SB822 is serving as a model for their discussions with other legislatures.

And finally, CBAC, we are pleased to have authored a number of articles and social media posts Combating the misinformation with regard to SB822, rest assured, California is not coming for your Crypto. This bill is both pro crypto and pro innovation.

We stand in support of that, and we really appreciate Controller Cohen taking time out of a busy schedule to share some updates on that. And we're very excited for what the Comptroller's office is going to do going forward. And thank you again. Thank you.

Good afternoon. Kelly Larue with Resilient Advocacy on behalf of the Crypto Council for Innovation. We appreciate the hearing today and the robust discuss discussion and look forward to the discussions over the coming months. Thank you.

Thank you.

Hi. Good afternoon, Chair Valencia, Members of the Assembly Banking Committee. I'm Ashley Gunn and I lead the State Government Affairs team for Coinbase. I know there was a lot of discussion today about Crypto. We just felt it was helpful to have Coinbase come and just tell you all that.

Thank you for all that you're doing here in California. Coinbase was founded here in California.

We've employed thousands of people over our time since we started back in 2012, and we're, you know, California has long led the world in technology and financial innovation, and crypto is just another chapter in that legacy, and we are proud to remain deeply invested here.

I believe it was stated earlier that 27% of Californians own crypto, and we just want to make sure that the policy choices made here in the Committee matter, made here in this Committee matter, clear technology neutral rules will keep innovation, jobs and capital income in California. Uncertainty or overreach will push them elsewhere.

The last thing I mentioned is California has always led by embracing innovation while protecting consumers. We want to thank the chair for his leadership in this space and the work of the Committee has done in advancing policies related to digital financial assets.

With thoughtful policy, Crypto can continue to grow here safely, responsibly, and to the benefit of California, the California economy. Thank you.

Wonderful with that. Thank you all for your time. Meeting adjourned.