Regulation has proven to be a polarising subject within the crypto sphere ever since the industry’s sudden ascent to notoriety. While regulation has the potential to protect long-term investors and promote the widespread use of digital currencies, others argue that regulation contradicts the inherent purpose of crypto, citing its decentralised nature as the industry’s main attraction.
Crypto regulation has been thrown further into the spotlight as a result of the sudden capitulation of Celsius Network. The exchange had emerged as a key player in the crypto space but halted withdrawals in June, citing “extreme market conditions”. The move caused chaos, with sellers dumping crypto assets and Bitcoin plummeting to a 17-month low.
According to Jesse Brown, CEO of Himalaya Exchange, regulation will be important in identifying lenders and coins which are over-collateralised, and transparency will be a crucial part of crypto’s acceptance into the global financial ecosystem.
Jesse explained: “It’s important that the cryptoindustry learns its lesson from the recent crash– I’m sure the 1.7 million Celsius customers who lost money have first hand experience. The issue is that Celsius was never really decentralised. They froze their assets and they had a structured team of lawyers in place; these aren’t the actions of a decentralised player in the crypto space.
“Celsius was masquerading as a DeFi institution but bore more similarities to a commercial organisation. When this is the case, we need to start treating crypto banks in the same way as traditional banks, which means mandated capital requirements, proper stress testing and systemic risk evaluations.”
Jesse continued: “Transparency lies at the heart of the crypto conundrum, and this is the industry’s clearest pathway to mainstream acceptance. This comes down to what’s called real-time attestations, where organisations prove that they are not over-collateralised and show their accounting in real time.
“For example, I would have liked to have known what Celsius’ reserves were, what was backing their loans. This is how we can ensure liquidity for all decentralised platforms and prevent a repeat of the Celsius crash.”
Jesse added: “Some exchanges have gone too far when promoting coins and we need to get away from that mentality. Moving forward, I’d like to see crypto emulating what traditional finance does when conducting an IPO.
“IPOs are heavily regulated, so there’s only so much you can do marketing-wise and only so much you can say to investors. If this approach was adopted when launching a coin, it would go a long way to building back the trust that was lost in the latest crash.”
Jesse concluded: “The key is putting enough regulation in place to win back trust, but maintaining just enough anonymity and privacy protections to appease the members of the cryptocommunity who oppose regulation.
“Hopefully regulatory bodies have learned a valuable lesson from this latest crash and their efforts to sure up the market will accelerate. In an industry where so much money can be wiped out in the space of a few days, investors need to be protected– there’s no question about it.”