Where do crypto exchanges go from here? 🤷♀️🤞
Where do crypto exchanges go from here? 🤷♀️🤞
Cooperation between regulators, industry players, and the broader community is crucial. Crypto exchanges must navigate a maze of regulatory requirements to build a successful crypto exchange.
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Globally, many regulators are either enacting regulatory schemes for dealing with digital assets or are on the brink of doing so.
The European Union is finalising the new Markets in Crypto-Assets Regulation.
Dubai authorities are setting up the world’s first authority solely focusing on virtual assets.
UK government intends to make crypto assets a regulated financial instrument.
But the US?
The Securities and Exchange Commission (S.E.C.) has stepped onto the stage, wielding their legal swords. Major exchanges Binance and Coinbase are hit with the legal hammer this time.
Read it all here - The good, the bad, and the crypto lawsuits ⚖️
Now, the S.E.C.'s chair, Gary Gensler, is quite the confident one. He firmly believes that most crypto tokens are securities and should be under their watchful eye.
What Binance is facing?
Accused of operating a securities exchange and selling digital assets without proper registration.
Binance's CEO, Changpeng Zhao, was specifically named in the lawsuit and accused of civil fraud.
Alleged that Binance funnelled customer funds to a company owned separately by Mr. Zhao.
Binance faced about a dozen securities charges, including misleading investors and lacking adequate systems to detect manipulative trading.
The S.E.C. requested a temporary order to freeze Binance's U.S. assets.
What Coinbase is facing?
Accused of operating as an unregistered broker and facilitating the sale of crypto assets without proper registration.
The agency argued that most crypto products, including those offered by Coinbase, should be treated as securities and require registration and disclosures.
Coinbase and the SEC have been engaged in a public battle over the agency's stance on digital assets.
Coinbase petitioned the SEC for new rules and even sued the agency for failing to act on their petition.
Coinbase's Chief Legal Officer, Paul Grewal, testified before the House Agriculture Committee, advocating for legislation to provide clear rules rather than relying on litigation.
Now how can the regulators and crypto firms find a balance? And is there a blueprint for building a compliant exchange?
Back in the prehistoric crypto era of 2014, ICOs were still a glimmer in Satoshi's eye. Pioneers like Joel Dietz were playing around with "crypto-equity," a buzzword that didn't stick around. And then Ethereum came, its explosive growth spawning a legion of copycats.
But as the hype swelled, so did the government's eyebrows. And the "sufficiently decentralised" loophole that once protected these digital darlings began to close.
The crypto landscape has been a rollercoaster of ups, downs, and stomach-churning twists. From notorious fraud cases like the infamous Bitcoin Savings and Trust Ponzi scheme to more recent SEC enforcements.
Fast-forward to 2023, crypto is currently grappling with U.S. securities laws, and it's a confrontation that's been brewing for years. Fresh rules specific to cryptocurrency might be our only path forward. Yet instead of crafting regulations that resonate with the era of new technology, the SEC, led by Gary Gensler, is enforcing rules drawn from the 1940s 🕰️
Whether it's crypto or not, securities are still characterised by the Howey test. This four-pronged filter was crafted in 1946 to enforce accountability for companies offering public investments. But this test was conceived decades before the internet and even before decentralised blockchain protocols.
⏭️ What's next for exchanges?
Applying traditional securities regulations to crypto tokens is like putting a square peg in a round hole. However, expecting the US government to give crypto a free pass is unrealistic. A middle path is the need of the hour, one that embraces compromise and lobbies for regulation.
Starting a crypto exchange today may seem counterintuitive. The legal landscape has never been clearer, and compliance now costs less than non-compliance. Traditional industry giants are bogged down in legal-technical debt, leaving space for nimble newcomers.
Any crypto exchange that wants to succeed in this brave new world will need to craft a global growth strategy. Start by building a solid foothold in crypto-friendly countries like the UK and use it as a springboard to access English-speaking Africa and India. When the U.S. regulatory scene eventually loosens, be ready to swoop in and take advantage of the opportunity 🌍
While it might be tempting to envision a world without regulation, let's be realistic, a clear, actionable rulebook can be a springboard for unprecedented growth in the digital asset industry, outshining the cloudy laws that are currently in play.
We need an unambiguous standard that tells us when a project hits that sweet spot of decentralisation, just like Bitcoin and Ethereum did. Now, let's talk about a little flexibility with securities listings on exchanges like Coinbase. If a token starts off as a security but then decentralises over time, let's allow it to stay listed unless it fails to meet its decentralisation timeline. By introducing a clear "sufficiently decentralised" standard, we can invite stablecoins and cryptocurrencies to join the trading party on the likes of NYSE and Nasdaq.
Embrace the difference 🤗
We need a fresh approach that goes beyond "catch and punish." Instead of squashing innovation, and hurting companies that are genuinely trying to comply, we should have clear, forward-thinking regulations in place.
Cryptocurrency is not a traditional financial product. It's a new beast altogether. Regulators should not try to fit it into old moulds, but instead create rules that acknowledge and address its unique nature.
Take a cue from traditional financial markets where exchange, broker-dealer, and clearing functions are separate. Implementing this could mitigate potential conflicts and put investors at less risk.
Unclear rules drive businesses away and hurt competitiveness. Clear, comprehensive regulations can foster fair competition, promote sustainable growth in the crypto industry, and give companies the certainty they need to innovate and comply.
🏁 The finish line
Cooperation between regulators, industry players, and the broader community is crucial. In a world post-Coinbase, the rules of the game have changed. Crypto exchanges must now navigate a maze of regulatory requirements. However, with careful planning and a commitment to compliance, it's possible to build a successful crypto exchange that stands the test of time.
TTD Week That Was 📆
The week of lawsuits, SEC and the regulators push for crypto as securities.
Saturday: The AI tango - blessing or hex? 🕺💃
Friday: Will classifying crypto tokens as securities hamper blockchains? 🔫
Thursday: You've got mail 📮 from the SEC?
Wednesday: North Korea's Lazarus Group is back 🦹♂️
TTD Week in Funding 💰
Collectibles $5 Million. Web3 community and marketplace for collectors.
ResearchHub $5 Million. Token based social network that rewards scientists for openly sharing scholarly content.
Mnemonic $6 Million. NFT intelligence platform that provides NFT data, analytics, and insights through APIs.
Connext Labs $7.5 Million. To create a communication layer across different blockchain networks.
BoomFi $3.8 Million. To create a crypto payments platform, an all-in-one solution to send, accept, and convert crypto payments.
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