• Important distinction: cryptocurrencies and blockchain technology
• Regulation and transparency in the crypto industry
• Threats to the ability to innovate in technological development
The FTX bankruptcy, for the time being the last climax in a whole series of collapses in the crypto industry, has made the call for regulation louder, although this is more of a classic fraud, says the president of the central bank think tank. The insolvency of the crypto exchange was more about the lack of corporate and risk control, which was ultimately also confirmed by the new FTX CEO and insolvency administrator in his allegations against Sam Bankman-Fried.
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Nevertheless, the FTX insolvency and its consequences for the industry make it clear that the growing ecosystem of digital assets urgently needs regulatory safeguards. Central here are the advances in the underlying technologies, such as blockchain technology, because they are the tools that could ultimately reshape the financial industry by advancing Web3. It is therefore important “that the guard rails for investor protection and financial stability are in place, but it is equally important to promote the development and further development of technologies. Otherwise we will miss out on improvements in financial products, services and integration as well as opportunities for risk reduction”. , wrote Patricia Haas Cleveland.
Crypto market: balancing act between regulation and innovation
In her contribution, the financial expert also expressly warned that the supervisory authorities could equate Bitcoin, Ethereum and Co. with the technology on which they are based with a “tough crackdown” in the industry and thus hinder the innovative ability of the technology and its development. The technology goes far beyond its use in the field of digital assets and could change the financial market forever.
In addition, technological progress is no longer limited to the DeFi area, but is also evident in the traditional financial market, where distributed ledger technology is used, among other things. For example, traditional financial institutions such as HSBC or Goldman Sachs also use blockchain technology to process digital asset transactions.
In principle, it is important to create the basis for investor protection and financial stability. However, the development of technologies must not be restricted, otherwise possible progress in the financial sector would be hindered. This affects both financial products and financial services as well as advances in risk management. As an example, Patricia Haas cites Cleveland’s permissionless blockchains, which could benefit from lower costs, higher speed and improved data protection. In summary, the head of the central bank’s think tank makes it clear: “Stronger regulation may be needed, but regulators must not nip innovation in the bud.”
The global stability watchdogs also want the vulnerabilities of the decentralized financial markets (DeFi) investigate. According to Reuters, the latest report by the Financial Stability Board (FSB) for G20 finance ministers states: “The fact that crypto assets, which underlie much of DeFi, have no inherent value and are highly volatile magnifies the impact of these vulnerabilities when they arise, as recent incidents demonstrate.” According to the report, the extent of the FTX insolvency cannot yet be estimated due to a lack of transparency in the crypto sector. A possible solution is therefore “supervisory regulations for the direct involvement of banks in the DeFi industry”.
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