Crypto Regulations: Safeguarding Investors while Promoting Innovation sao chép

Developing proper mental models for understanding the convergence of blockchain technologies and the economic activity they support can be difficult, given the different operational and governance structures of the crypto market's hundreds of companies. Forming accurate mental models, on the other hand, is critical for investors, builders, project communities, and regulators attempting to safeguard investors from fraud.

With public blockchains, users can now send money internationally 24/7 at a fraction of the cost compared to using fintech services and traditional banking systems, even from countries that lack robust financial systems. Blockchain payment infrastructure also allows online services to expand sales globally, reaching hundreds of millions of internet users who find it difficult to obtain a Visa or Mastercard.

The innovations and applications that can be built on top of blockchain technology are vast and still in the formative stages. Besides playing an outstanding role in supporting international payment systems, blockchain networks can support various other exciting technological applications, such as NFTs, real-world asset tokenization, and more.

Although enforcing strict regulation on the crypto sector would protect investors from the risks associated with a volatile market, it could also drive innovation away from the regulating economy, hampering long-term productivity.

Enforcing compliance requirements for small projects and centralized networks with business-like structures may seem reasonable. However, for projects that do not follow the business structure, even if the community wishes to comply with regulations, meeting the requirements could be technically unfeasible.

For traditional governments, offering a safe sandbox for entrepreneurs and innovators to explore the Web 3 space while ensuring investor safety at gateways could be a winning strategy. This might accelerate innovations, enhancing long-term efficiency and prosperity, all while feasibly mitigating the worst sources of risk to participants in new on-chain economies.

Conversely, blockchain governance entities should acknowledge their involvement in emerging economic systems. As such, ensuring their blockchain economies adhere to various global regulations can be likened to the execution of government foreign policies. It may be unattainable to satisfy all the regulations, but the focus should be on compliance and collaboration with countries that offer greater advantages for the participants of blockchain networks.

Regulatory Priorities: Focusing on What Truly Matters

Governments consistently seek to influence other economies for their people‘s benefit and prosperity, although it’s challenging. However, governments can exert a significant impact on cross-economic activity via their influence over gateways and connectors within their localized economy.

Centralized exchanges (e.g. Binance, Coinbase) and centralized digital asset issuers (e.g. Circle, Paxos, and Tether) connect traditional economies with blockchain economies. They serve as gateways, allowing blockchain users to transfer off-chain wealth onto blockchains. While on-chain economies have their own rules and regulations, most of the damage inflicted on the crypto sector in the last few years occurs at these connectors.

The FTX collapse alone resulted in over $8 billion in customer losses, as reported by the US Commodity Futures Trading Commission (CFTC) and FTX itself. Furthermore, Celsius, another centralized platform, filed for bankruptcy in July 2022, impacting approximately 600,000 accounts with a total value of $4.2 billion, as stated by a ruling from the US Bankruptcy Court in New York. The combined financial toll of these two collapses alone is more than four times the total damage caused by DeFi hacks in 2022.

Conversely, blockchain governance entities should acknowledge their involvement in emerging economic systems. As such, ensuring their blockchain economies adhere to various global regulations can be likened to the execution of government foreign policies. It may be unattainable to satisfy all the regulations, but the focus should be on compliance and collaboration with countries that offer greater advantages for the participants of blockchain networks.