FTX is three letters on everyone’s lips in the last days. For those active in the crypto space, this has been a devastating blow as the tumultuous year for crypto draws to a close.
The consequences are serious: According to bankruptcy filings, more than a million people and businesses owed money after the collapse of the cryptocurrency exchange. As the investigation into the collapse continues, it will certainly encourage the introduction of regulatory changes, either through legislators or federal agencies.
While regulators may feel relieved that the scandal is out of their control, it highlights that regulators around the world simply haven’t taken enough action on crypto exchanges, many of which would welcome a clear framework from those in power.
Connected: Bankman-Fried has misled regulators away from centralized finance.
Some argue that regulators are to blame for allowing or even encouraging FTX’s behavior and, as a result, creating many imperfect cryptocurrencies. It is fair to say that regulators are partly to blame for this tragedy, and while inaction shields them from liability, inaction on their part is equally damaging to their reputation as they are presented as irresponsible for not doing more to protect consumers.
Ripple CEO Brad Garlinghouse tweeted on Nov. 10, “Singapore has a licensing structure, a taxonomy of tokens laid out, and more. They can regulate cryptocurrencies appropriately because they have done the work to define what is “good” and know that all tokens are not securities… to protect consumers, we need regulatory guidance for companies that provides trust and transparency.” .
@SenWarrenBrian is right: to protect consumers, we need regulatory guidance for companies that provides trust and transparency. There’s a reason most crypto trading is done overseas – companies don’t have instructions on how to comply here in the US. 1/2
— Brad Garlinghouse (@bgarlinghouse) November 10, 2022
Cryptocurrencies are a unique asset class that just keeps gaining momentum. The longer the sector remains without certain rules, the greater the likelihood of negative events and crises. Given the novelty and international nature of crypto assets, it is not surprising that regulators face an unprecedented challenge that is difficult to manage.
However, the lack of action from regulators is a major factor in Sam Bankman-Fried’s ability to manipulate and abuse assets for his own benefit – without direct oversight, any financial service (including banks) could be tempted to use their clients to increase their profits, risking losing everything. your money.
Connected: Will SBF face the consequences of mismanaging FTX? Do not count on it
When comparing the behavior of regulated and unregulated entities, a good example is the German crypto bank Nuri, which ordered its 500,000 users to withdraw funds from their accounts before the firm closed and liquidated its business. This is different from unregulated companies like FTX and other crypto exchanges that have simply frozen their clients’ assets and made it impossible for them to get their funds back.
While it would be appropriate and reasonable for any business that owns third party assets (such as centralized exchanges and lending platforms) to be subject to the same level of controls and regulations as banks, it would be even more beneficial if traditional banks took assume the role of a “trusted third party” and directly offer crypto services to their customers. Acting as a trusted intermediary, their centuries-old history provides them with a level of trust and security that can help consumers connect and use crypto services with much greater ease.
As the crypto world continues to wait for much-needed regulatory intervention, banks must take the lead and leverage the new digital asset to begin mitigating the risks and losses that millions of crypto users are suffering from today.
Yang Lan, CFA, is the co-founder and chairman of Fiat24, the first Swiss bank built on blockchain. He holds an MA in Economics from the University of Munich and an MBA from IE Business School. A former UBS banker, he has many years of experience in banking.
The opinions expressed are solely those of the author and do not necessarily reflect the views of Cointelegraph. This article is for general informational purposes and is not intended and should not be taken as legal or investment advice.