¿Regulation?
We are experiencing something special. Because the cryptocurrency space is growing it attracts governments attention. This means that they want to do what they know best: regulate and tax.
What are they facing?
The problem is complex. How do you regulate something that is permissionless and has been built around anonymity and decentralization? These are the base principles of blockchains and the entire architecture is built this way. This is why it is so hard to regulate crypto. It should be a joint effort and countries should adopt a common framework. And in order to do this they should agree on it. In the most probable case of disagreement arbitrageurs can speculate in order to attract more funds to a specific region.
Moreover, most regulators don’t understand the basic principles of this technology because it is different than anything they faced before. It is hard to understand decentralization because all the financial and governmental system is centralized. So they must work with consultants, specialists in this field who can
We have examples of global collaboration around a common framework. For example internet protocols like HTTP, some RPCs which are widely adopted among the crypto industry and many other examples. But in order for this to happen they must come up with a solution.
What governments can do is regulate the entrance and exit doors and centralized entities. These are centralized exchanges and collateralized stablecoins because they are issued by a an entity. And this is what they are doing! It is easy to elaborate a framework for the centralized entities that operate within a space because they have a team to talk with. It is harder to regulate a global and decentralized solution held up by a team of anonymous backers spread out all over the world. This is the biggest issue with crypto regulation and here Clorophilla has something to sau! Probably DeFi can somehow be regulated if you provide them a reasonable and positive solution. Until now, no one came up with a decentralized solution to this issue.
What are the advantages of regulation?
About everyone in the space wants a regulatory framework. And this is positive because it diminishes risks. What risks? Some are related to cashing out, interacting with various suspicious entities or CEX failure.
With a transparent environment guided by rules it is safer for users to interact with this space. For example, using custodians for asset management could be safer because their risk of default would be limited. Using an exchange could be similar with using a bank as their activity would be regulated, they would be audited and all the funds covered. Long story short, FTX wouldn’t have failed. Another advantage would be related with the proof of funds requested by banks because they would understand the market, that is is regulated and a framework for proof of funds would be in place.
What are the disadvantages of regulation?
This is a hard one. Some people might find it hard to justify some of the funds gained in DeFi. Also, some profitable instruments or solutions might loose value. For example privacy coins or algorithmic stablecoins. Some would loose funds over this. Some entities might not be able to comply with regulations and might be forbidden to operate in some jurisdictions. For example some CEXs might not have the power to implement regional measures for all jurisdictions and comply with them.
Regulating this market is challenging. We don’t know the reaction and what might happen although the current sentiment is positive. It is also a challenging issue because it requires a joint effort from competing states and it is probably the first time a global decentralized platform must be addressed. Given the current competition there will be states who sustain crypto and others who don’t. Of course many funds will flow towards the ones who sustain it or embrace favorable regulatory measures. We should see this and analyze the implications according to the regulatory measures as we can’t tell now.
Definitely it is an important topic as it would attract liquidity in this space. By having a safe environment there would be less negative news like FTX crash or money laundering which definitely scares off some users.
What we do?
We are definitely a potential solution as we can bring more transparency to the blockchain. And to the DeFi space. We are optimistic and strongly believe that we can be one of the most important players in this space in the upcoming years.
Until next time : OUT
