02 Jun 2022 · 4 min read

The Crypto Industry Needs to Unite to Bring Together a Global Regulatory Framework

Source: Adobe/I Believe I Can Fly

 

Valentina Drofa is the Founder and CEO of Drofa Comms, an international PR consultancy for financial and fintech companies.
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The crypto industry is developing rapidly while regulators around the world are struggling to keep up with its pace and figure out how to fit this new economy into the traditional market. But while they are trying to come up with the best ways to develop new regulations on the international stage, the industry needs to regulate itself in order to build up trust with the global community.

Some prominent market players, such as Coinbase and Gemini exchanges, alongside major investors in crypto, like Andreessen Horowitz (a16z), believe that traditional agencies are not suited to oversee the development of this sector. They consider that these organizations have neither the right tools, nor the expertise, and so far they have been struggling to apply decades-old rules to the new industry.

Setting aside the question of whether traditional regulators can adapt appropriately to the crypto sector, I do think that a bigger emphasis needs to be placed on the work of specialized associations and working groups within the industry itself.

If the crypto sector does not wish to be ruled by the same framework as traditional finance, its members should unite to create general guidelines that maintain blockchain mottos. And the task of supporting the development of regulations in crypto and blockchain should be better suited for self-regulatory organizations (SROs) to tackle.

The crypto industry working towards the same goals

Both the crypto industry and regulators want to protect investors and ensure market integrity. Ideally, an SRO should be a highly-respected body, bringing together representatives of the industry dedicated to its development. To join such organizations, it should be essential to have a thorough enrollment selection with background checks and a deep assessment of how the applying company can contribute to the future and democratization of this industry. 

SROs in the crypto industry could avoid the excessive centralization of the power to define rules and monitor compliance. 

With its member’s expertise and resources, for example, this type of organization would be able to oversee the need to create frameworks for new products with the agility required by this dynamic industry.

To give an example, Japan is at the forefront of crypto regulations and is an example of SROs that work well with local official organizations. Since 2020, the country’s main regulator, the Financial Services Agency, has officially recognized two self-regulatory crypto organizations. There, both SROs and the government have been working together to develop laws and guiding principles.

There are numerous crypto associations around the globe, however, they don’t seem to be making much headway. Unfortunately, many of them end up becoming groups that lobby for their own interests, with membership based on willingness to pay to join. At best, they encourage data-sharing practices among members, but even that is done more to identify potential clients and maximize profits rather than improve the market in any considerable manner. All the while, the average user's needs, and uncertainties go unanswered.

To show some improvement, SROs and their members must address robust compliance and governance standards. They must keep the focus on the protection of users and strengthen legal operational security, respecting privacy protection of users' information, among other things.

It is necessary to have strong accountability and oversight, with transparency of the association‘s activities. 

Organizations have to maintain communication with other local and international regulatory actors. And their members should also be prepared to accept penalties and sanctions for non-compliance with the association‘s principles.

Based on these premises, it is my opinion that this sector would benefit from centralizing its efforts in one or two self-regulatory representative bodies composed of people that have a real stake in the industry, with a proper understanding of its performance and potential, and long-term interest in promoting the mass adoption of crypto.

Regulate and educate must always work together

Another important point that needs to be raised is that SROs should not only work with regulators and politicians to create rules, but also conduct social campaigns aimed at the general audience on crypto and blockchain. 

Education is the only way to increase transparency and ensure awareness of the potential risks crypto investors would be facing. Subjects such as market volatility, potential threats, and security of personal information are central to improving financial literacy and helping the crypto industry advance. 

Some top crypto companies, such as Binance Academy and Crypto.com University have already been doing such initiatives, offering free educational content with the purpose of enlightening users on the world of crypto and blockchain. 

However, not only do such measures have a limited reach but they are also done mainly as part of marketing strategies for those companies.

As businesses, their primary goal with such initiatives is to create a more positive image of themselves in the market and attract more clients, rather than genuinely change the market situation itself.

Conclusion

Cryptoassets were created to exist in cross-border networks. Hence, the regulation of this industry needs to be looked upon in the global context. 

There have to be in-depth debates, involving not only governments and regulators but also official representatives from the crypto industry itself. 

An independent SRO-like entity, empowered and acknowledged by the international community, could have a meaningful impact on the credibility of the crypto industry and its integrity in the long run.
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Learn more: 
- Group of Tech Pros, Academics Urges Washington to Turn its Back on Crypto Lobbyists
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- South Korea to Launch a Crypto Regulatory Agency in Wake of LUNA Crash
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