FTX illustrated why banks need to support cryptocurrency

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FTX — the three letters on everyone’s lips these days. For those active in the crypto space, this has been a blow as a tumultuous year for crypto comes to an end.

The repercussions are severe, with over a million people and businesses owed money following the collapse of the crypto exchange, according to bankruptcy filings. With investigations into the collapse underway, this will certainly push forward regulatory changes, either through lawmakers or through federal agencies.

While regulators may feel relieved that the scandal did not happen under their watch, it underscores that there simply hasn’t been enough action taken by regulators around the world in support of crypto exchanges yet, many of whom would welcome clear frameworks from those in power.

Related: Bankman-Fried tricked regulators into turning them away from centralized finance

Some have argued that regulators are responsible for allowing or even encouraging FTX’s behavior and, by extension, creating many of the defaults. cryptocurrencies. It is fair to say that regulators are partly responsible for this tragedy and while failure to act shields them from liability, inaction on their part is equally damaging to their reputation as they are portrayed as irresponsible for not do more to protect consumers.

Ripple CEO Brad Garlinghouse tweeted on Nov. 10, “Singapore has a licensing framework, token taxonomy and much more. They can properly regulate crypto because they have done the work to define to what “good” looks like, and know that not all tokens are securities… to protect consumers, we need regulatory guidelines for businesses that ensure trust and transparency.

Cryptocurrencies are a unique asset class that continues to gain traction. The longer the sector remains without defined regulation, the greater the risk of negative events and crises. Given the novelty and international nature of crypto assets, it is no surprise that regulators are facing an unprecedented and difficult to manage challenge.

However, the lack of action by regulators is a major contributing factor to Sam Bankman-Fried’s ability to manipulate and misuse assets for his own gain — without direct supervision, any financial service (including banks ) could be tempted to use its customers to increase their profits at the risk of putting them in danger of losing all their money.

Related: Will SBF face the consequences of FTX’s mismanagement? Don’t count on it

Comparing the behaviors of regulated and unregulated entities, a good example is German crypto bank Nuri, which told its 500,000 users to withdraw funds of their accounts before the closure of the company and the liquidation of its activities. This is different from unregulated companies such as FTX and other crypto exchanges, which simply froze their clients’ assets and prevented them from recovering their funds.

While it would be relevant and logical for any business that holds third-party assets (like centralized exchanges and lending platforms) to be subject to the same level of scrutiny and guidelines as banks, it could be even more beneficial than traditional banks are taking on the role of “trusted third party” and directly offering crypto services to their customers. Acting as a trusted intermediary, their history over centuries gives them a level of trust and security that could help consumers integrate and use crypto services with much greater ease.

As the crypto world continues to wait for the much-needed intervention from regulators, banks should take the lead and embrace the new digital asset as a way to begin mitigating the risks and losses that affect millions of people today. crypto users.

Yang Lan, CFA, is the co-founder and chairman of Fiat24, the first Swiss bank built on the blockchain. He holds a master’s degree in economics from the University of Munich and an MBA from IE Business School. A former UBS banker, he has decades of banking experience.

The opinions expressed are those of the author alone and do not necessarily reflect the views of Cointelegraph. This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice.


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