Crypto Regulation Can Be Important After FTX – But Let Us Start With The Basics

Congress needs to begin addressing what cryptos are securities and what are commodities and come up with functional crypto regulation guidelines.

Crypto CEOs and leaders know that the sector is misunderstood and often criticized. At times, the criticism is deserved since participants have not always played their part in shining a light on the utility and use cases that power positive change. But other times, it is based on the assumption that all the players in the sector are the same, which is not the case.

Recently, doubts reached peak levels with the abrupt epic implosion of FTX, one of the biggest crypto exchanges in the world – and maybe the biggest-ever example of the need for regulatory oversight in the sector.

Considering the positioning of FTX, it was a massive leap to see them face insolvency. When that news broke, there was a huge downturn in the digital assets market. The consumers were left to decide whether FTX – or any other entity in the crypto space – is a safe steward of their funds.

Most people wonder whether there is a future for crypto, and that is understandable due to the big hole that the industry has created. However, there is a future for crypto and blockchain, and we should not lose sight of the utility and value of the nascent technologies to do meaningful things –ranging from optimizing supply chains around the world to developing equitable access to the global financial network.

The real issue is how we develop the future that we want that inspired the development of technology in the first place. The solution relies largely on standards (both technical and industry-wide) and rules, some of which need to come from public officials.

The US federal government is well positioned to lead. To do that requires regulators to give the sector guidance and clarity by implementing several thoughtful and principal-based regulations. This kind of leadership will assist in shaping the ‘right’ future. Thus, with the newly elected Congress, they should adopt the charge.

Interestingly, the future of blockchain and all of the benefits it offers depends on the right guidance and regulation. The sector needs to do its part to work transparently and in the best interests of users, despite the absence of defined regulation. But without credible oversight, we will see many businesses that fail to put consumers’ interests first.

It is now important for Congress to pass three key measures in 2023 to offer consumers and investors the protections they need.

First, clarify the definition of the legal status of digital assets: when are these digital assets classified as commodities, securities, or something in between? How is the new product defined? It is the government’s role to make it quite clear for both the big and small participants – and not assume that clarity exists – since consumers are losing a lot.

Second, push the stablecoins to remain stable always: The Terra collapse saw the evaporation of $60 billion in value overnight. Consumers have to be assured that stablecoins have to be backed by high-quality liquid assets on a one-to-one basis. Stablecoins are crucial for the real utility offered by blockchain. Rules of the road here are important to the consumers and will result in more innovation.

Third, digital asset exchanges. As we have already seen with the case of FTX, consumers are majorly exposed to risks whenever they trade and custody of their assets with exchanges. While some of the risks are well understood, Congress has to guarantee that consumers have the ideal safeguards needed to engage with the platforms.

The experience of the content side of the web has taught us the importance of early engagement with policymakers to help come up with regulations for emerging technologies. But some of the lessons are learned the hard way – since the sector did not engage. Instead, the participants told the government to trust they would get it right on their own.

They thought they had all the answers. Some regulations were already in place for data collection activities on the internet. However, none of them accounted for the data collection technology firms were doing daily. Balancing the industry’s bottom line with the consumers’ best interests created a huge gap that many thought could be managed.

It is now clear that this ‘ignorance’ resulted in a data crisis where people became the product, and collective and individual privacy vanished before our eyes.

There are several parallels with blockchain, the new emerging technology. It is important that the networks developing these services and products powered by this technology continue to work together with the public sector to come up with regulations that will provide clarity and safeguards.

Blockchain comes with unlimited potential and everyone can play a role to help forge the public-private partnerships needed to secure more stability across the sector. Hopefully, the new Congress will meet industry players halfway.