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The global crypto monetary system is experiencing tremendous growth. This has led to increased interest from regulators and policymakers looking to understand and mitigate the risks associated with this new technology. While some concerns need to be addressed, I believe that regulatory action can address the immediate risks in the system. By working together, we can ensure that crypto continues to grow and thrive while minimising potential dangers.
The crypto industry is in a transition phase. Authorities need to follow the principle of “same activity, same risk, same rules” to the crypto. They should ensure that crypto and DeFi activities comply with legal requirements for comparable traditional activities.
Stablecoin issuers, for example, are similar to deposit takers or money market funds (MMFs). As a result, legislation is required to classify these operations and assure their prudential control and transparency.
Also, entity-based criteria and strong control will be required if major companies issue stablecoins with vast networks and user data. The recent turmoil in the stablecoin systems has underscored the importance of the situation.
Relevant policies will ensure the monetary and financial systems’ safety and integrity.
Cryptocurrency exchanges that fail to follow basic know-your-customer (KYC) and other Financial Action Task Force (FATF) regulations and conceal the identities of transacting parties should be dealt with a strong hand. Otherwise, they may fall prey to laundering money, avoid taxes, fund terrorists, and avoid economic restrictions.
Banks, credit card firms, and other financial organisations that provide entrance and exit points between DeFi and the traditional system should also demand user identity and conduct KYC compliance.
While investors should be permitted to participate in hazardous assets, including cryptocurrency, companies should provide proper transparency. This necessitates strict supervision of digital asset promotion by crypto platforms, which may frequently be deceptive and exaggerate hazards. Front-running practices may necessitate the use of novel legal strategies. In short, consumer protection should be the top concern of any firm.
Finally, central banks and regulators must limit the risks to financial stability posed by banks and non-bank financial intermediaries’ exposure to the crypto realm. Because traditional financial institutions are rapidly increasing their stakes in cryptocurrencies, shocks to the cryptosystem might have far-reaching consequences.
According to reports, non-bank investors, family offices, and hedge funds have been the most active institutional investors in cryptocurrencies. So far, significant traditional banks’ exposures have been restricted, and direct investments in enterprises participating in crypto markets remain minimal compared to bank capital.
Addressing these risks necessitates the effective application of regulations for bank exposures to cryptocurrencies, which should guarantee enough resilience to big and unexpected price swings or large losses via direct and indirect routes.
Crypto and DeFi will require international cooperation. Cross-country authorities may need to exchange information, take joint enforcement actions against noncompliant actors or platforms operating in different countries and establish new bodies such as colleges of supervisors who can coordinate policy toward the same regulated entities but with differing regulatory requirements due to an evolving digital landscape that is both globalised yet diversely local at once — all while keeping ahead by staying current with cutting edge technologies like blockchain which has already begun transforming our lives even before we’ve fully understood its implications for society yet.
In the long run, the crypto community must unite to support projects to create a more secure and regulated system. With your help, we can make Scallop the premier digital banking solution for the crypto industry. We appreciate your continued support as we attempt to build a better future for everyone involved in cryptocurrencies.
To solve the problem Scallop has created the Scallop Chain which is the world’s first fully regulated bank on a chain. The Scallop Chain is a Byzantine fault tolerance blockchain with core KYC & AML modules included in the consensus mechanism at the protocol level. It is the world’s first regulated secured infrastructure providing a suite of banking products to empower millions of retail & business customers.
