On December 20, Brian Armstrong, the CEO of Coinbase, outlined a plan for regulating centralized entities in the cryptocurrency industry while safeguarding decentralized ideas.
Centralized Exchanges Prone to Harm
According to Armstrong, the best thing for the sector would be to regulate centralized organizations like exchanges, stablecoin issuers, and crypto custodians. He said that centralized exchanges are where the industry has seen the most risk of consumer harm. He added that everyone is in agreement that this is a low-hanging fruit that should be addressed.
Armstrong noted that efforts to regulate stablecoin issuers were already moving forward and expressed his expectation that it will happen in the first half of 2023. He claims that stablecoin issuers are not required to be banks, provided they don’t lend out fractional reserves or engage in risky assets.
Stablecoin Issuers Must Comply
He advised stablecoin issuers to apply for OCC national trust charters or state trust registrations. In addition, he said that these issuers have to adhere to fundamental cybersecurity standards, have thorough yearly audits, adequate board controls, and governance.
With regard to centralized exchanges and custodians, Armstrong pointed out that rules for these organizations should concentrate on putting in place strong know-your-customer (KYC) and anti-money laundering (AML) policies and processes. Aside from that, their rules should establish a federal licensing system where one license is sufficient to operate in a single nation. Strong consumer protection legislation, guidelines for protecting clients’ funds, and a ban on market manipulation are among the other restrictions that are suggested.
Differentiating Securities from Commodities
The CEO of Coinbase also discussed how authorities like the CFTC and SEC can evaluate if an asset is a security or a commodity. He suggested creating a “modern-day Howey Test for cryptocurrency” to establish whether an asset qualifies as a security. Crypto stakeholders have criticized U.S. financial regulators for their failure to give regulatory clarity on token classification. The CFTC recently determined that commodities might include Bitcoin (BTC), Ethereum (ETH), and Tether (USDT).
Armstrong thinks legislation to better regulate business players should be passed by the US Congress.
Additionally, he emphasized the importance of establishing fair competition for both domestic and foreign businesses in the market. He contends that foreign businesses that provide services to a nation’s inhabitants ought to be required to follow its laws.Without such a level playing field, crypto businesses would continue the pattern of moving to advantageous overseas jurisdictions, according to Armstrong, who used the collapse of FTX as an example. These entities have an advantage over domestic businesses that must follow the rules as a result of this.
He asserted, however, that decentralized entities had to be permitted to innovate without being regulated. We have the chance to build even greater consumer protections because of the decentralized nature of cryptocurrencies, he continued.
Image Courtesy of Shutterstock and original source
