FTX: the three letters on everyone’s lips in recent days. For those active in the cryptocurrency space, it has been a crushing blow as a tumultuous year for cryptocurrencies draws to a close.
The repercussions are severe, with more than a million people and companies owed money following the collapse of the cryptocurrency exchange, according to bankruptcy filings. With investigations into the collapse underway, regulatory changes will surely be pushed through, either through lawmakers or federal agencies.
Although regulators are relieved that the scandal did not occur on their watch, it underscores that regulators around the world have not yet taken enough action on cryptocurrencies, many of whom would welcome clear frameworks from rulers. .
Some have argued that regulators are to blame for allowing or even encouraging FTX behavior and, by extension, the creation of many flawed cryptocurrencies. It is fair to say that regulators are partly to blame for this tragedy and while failure to act shields them from liability, inaction on their part is just as damaging to their reputation as they are portrayed as irresponsible for not doing more to protect regulators. consumers.
Ripple CEO Brad Garlinghouse tweeted on Nov. 10: “Singapore has a licensing framework, an established token taxonomy, and much more. They can properly regulate cryptocurrency because they have done the work to define what looks like “good”, and they know that all tokens are not securities… to protect consumers, we need regulatory guidance for businesses that ensures trust and confidence. transparency”.
@SenWarren, Brian is right — to protect consumers, we need regulatory guidance for companies that ensures trust and transparency. There’s a reason why most crypto trading is offshore – companies have 0 guidance on how to comply here in the US. 1/2
—Brad Garlinghouse (@bgarlinghouse) November 10, 2022
@SenWarren, Brian is right: to protect consumers, we need regulatory guidance for businesses that ensures trust and transparency. There’s a reason most cryptocurrency trading takes place offshore: companies have no guidance on how to comply here in the US 1/2
Cryptocurrency is a unique asset class that is gaining fans all the time. The longer the sector goes without defined regulation, the more chance there will be of negative events and crises. Given the novelty and international nature of crypto assets, it is not surprising that regulators face an unprecedented and difficult challenge to overcome.
However, the lack of action by regulators is a major contributing factor to Sam Bankman-Fried’s ability to manipulate and misuse assets to his own advantage: without direct supervision, any financial service (including banks) might be tempted to use their customers to increase their profits at the risk of putting them in danger of losing all their money.
Comparing the behaviors of regulated and unregulated entities, a good example is that of the German crypto bank Nuri, which told its 500,000 users to withdraw the funds from their accounts before the firm closed and liquidated its business. Unlike unregulated companies like FTX and other cryptocurrency exchanges, which have simply frozen their clients’ assets, leaving them unable to recover their funds.
While it would be appropriate and sensible for any business holding third-party assets (such as centralized exchanges and lending platforms) to be under the same level of scrutiny and guidance as banks, it might be even more beneficial for traditional banks to take on the role of “trusted third party” and offer cryptocurrency services to their customers directly. Acting as trusted intermediaries, their history over the centuries gives them a level of trust and security that could help consumers onboard and use crypto services much more easily.
As the world of cryptocurrencies continues to await much-needed intervention from regulators, banks should take the lead and embrace the new digital asset as a way to start mitigating risks and losses affecting millions of cryptocurrency users across the board. present.
yang lan, CFA, is co-founder and chairman of Fiat24, the first Swiss bank built on blockchain. He has a master’s degree in economics from the University of Munich and an MBA from IE Business School. A former banker at UBS, he has decades of banking experience.
Opinions expressed are solely those of the author and do not necessarily reflect the views of Cointelegraph. This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice.
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