Regulation Is Necessary and Inevitable for Maturation of Token Economy
In light of the SEC’s recent crackdown on EtherDelta, many in the blockchain space believe we are facing a frigid “crypto winter.” Though stricter enforcement can have an effect on growth, regulation is both inevitable and necessary for the maturation of the token economy. For projects seeking to be compliant, dealing with regulatory ambiguity has been costly, time-consuming, and frustrating to say the least. Furthermore, get-rich-quick schemes, price manipulation, and other nefarious activities have not helped the perception of tokens and other digital assets among institutional investors and the mainstream.
Historically, regulation has been crucial for the development of some of the greatest financial systems responsible for spurring economic growth. One of the most obvious examples is the development of stock markets. The first proper stock markets surfaced around the 16th century in continental Europe when merchants seeking capital for large ventures formed joint-stock companies with like-minded individuals. Such systems only functioned within certain regulatory frameworks. The Dutch East India Company is credited as the first, fully-fledged, publicly-traded company — created in order to mitigate risk to individual investors through diversifying their portfolios across a number of shipping excursions.
As the individuals involved in such markets continued to grow, regulation became even more necessary — one need only look at the disastrous Wall Street Crash in 1929, which led to the Great Depression. Worryingly, this was chiefly caused by rampant speculation, where stocks were overvalued.
It’s hard not to draw parallels between these events and the ICO rush of Summer 2017. The relative lack of scrutiny created room for those who would take advantage of unwitting investors. The SEC enforced actions against Munchee in 2017, offering the token community a preliminary glimpse of its seriousness. Security tokens rose from a need for sustainability amidst regulatory ambiguity, as these digital assets are compliant with SEC regulations.
If anyone needs inspiration for accepting the importance of regulation, one need look no further than the internet. Today’s world wide web, once thought to be a harbinger of democracy and economic opportunity for all, is now run by a handful of data-rich corporations (Facebook, Google, Amazon, Apple, Microsoft). The “Frightful Five,” as they have been termed, collectively wield more power than many world governments. While billions of dollars flow into their corporate coffers because of the data shared by consumers, platform users gain little by comparison.
Though some argue that free email and the ability to like posts on social media justifies a tradeoff in data collection by the platforms, this argument does not hold up when the scale of wealth generated from user data is taken into account. In a world where data could soon be our most valuable asset, a system where users earn no compensation for their contributions is economically unsustainable. What’s more, the Facebook-Cambridge Analytica scandal demonstrates that these corporations are not equipped to make moral and ethical decisions to protect people, nations, and ideals absent of regulatory frameworks.
The token economy is still young. Let’s not allow for detrimental use of tokenization to define this new sphere. By embracing regulations that genuinely protect individuals and entities, we can ensure the spirit of empowerment that first gave rise to this novel ecosystem is retained. The good news is that there is a path forward for crypto projects, attained by registering tokens as securities. If we play our cards right, perhaps a warm spring will follow the so called “crypto winter.”
As always, be sure to keep up with our developments on social media:
Website: openfinance.io
Telegram: t.me/openfinancenetwork
Twitter: twitter.com/OpenFinanceIO
LinkedIn: linkedin.com/company/openfinance-network
Medium: medium.com/openfinance
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Juan M. Hernandez is the Founder and CEO of OpenFinance Network, the trading platform for security tokens and other alternative assets. Juan is a serial entrepreneur, technologist, and polymath experienced in financial markets, exchanges, and blockchain technology. He holds a CS degree from Northwestern University and an MBA from the Kellogg Graduate School of Management.
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