Regulating Crypto Exchanges: What Does It Mean For Crypto And DeFi? – Tech Tribune France

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Finance. Aber einfach.

Cryptocurrencies – the new unknown asset. At least in the eyes of regulators in the United States and Europe. Many refer to the market around Bitcoin, Ethereum & Co as Wild West territory, where platforms and brokers like Binance, Kraken and many more act as hubs.

Investors, on the other hand, are often happy with the new opportunities that cryptocurrencies can provide. This is also true for the corresponding crypto exchanges themselves, which until now often did not have to follow the same standards as exchanges for other assets. This was mainly because no one knew how cryptocurrencies and new DeFi products such as lending, staking, or liquidity mining should be legally classified.

Now, however, the wild times seem to be over. Authorities and the Biden administration are increasingly pushing for regulation.

But is it actually good or bad for the development of cryptocurrencies and DeFi?

In the crypto scene, many are worried about development. We notice that free time is slowly coming to an end.

However, below you’ll find out why it might all come in handy in the end.

And yes, this point of view is controversial, of course. However, there are some good arguments in its favour.

Should Coinbase, Binance & Co be monitored more closely?

In the crypto scene, and more specifically in the Bitcoin scene, many investors see regulation as a threat to the entire space.

This can be understood from several angles.

On the one hand, crypto and especially Bitcoin is synonymous with freedom for many investors. Therefore, hardly anyone wants to see so-called on- and off-ramps such as Binance and other platforms come under closer scrutiny.

However, it is important to realize that regulation does not automatically mean regression. In fact, regulation can also mean progress – indirectly!

What many fear is that Bitcoin and other cryptocurrencies will be forced into a tight legal corset in which innovative products cannot develop.

What should not be overlooked, however, is that regulation can also have very positive side effects on the market as a whole.

Why on earth would restricting freedom have positive effects?

Let’s explain.

Many institutional investors, and Wall Street in general, have indeed become much more open to cryptocurrencies than they were last year. However, there is still a veil of the unknown over it.

Measurements are only taken with great care. People don’t really dare yet.

If clear classification, investor protection and a legal framework are now prescribed by legislators and authorities such as the SEC, this limits the freedom in the ecosystem to some extent.

On the other hand, it also ensures that funds and institutional investors get closer to the topic of crypto and in some cases are even allowed to do so first.

After all, if we’re being completely honest, the “big money” from institutional investors is exactly what everyone expects.

More money on the market means more attention and therefore more adaptation.

So, indirectly, regulation can be an important driver of growth. Coinbase, by the way, paved the way – it is the first port of call for many institutional investors.

Not because the fees are so advantageous there. This is not the case compared to many other exchanges. But because the exchange is the most closely guarded.

The important thing is always to find the right balance.

Too much legislation can stifle the market. If there are too few laws, the REALLY big growth of BSDEX, Changelly, Bittrex and others may be a long time coming.

The curious case around Coinbase

A particularly bizarre event occurred when Coinbase wanted to launch a lending product on its platform.

So, as one of the most well-known exchanges in the world, Coinbase went to the SEC (Securities and Exchange Commission) and informed the authority of its plans and asked for its assessment. The goal was to offer a lending product with 4% APY on USD Coin (USDC).

Now, it must be said that Coinbase had no choice but to knock on the door of the SEC. The difference between Coinbase and other exchanges like Kraken, Binance, Bitfinex and others is that Coinbase is considered a gateway for institutional investors. Precisely because they are regulated by the SEC there.

So if Coinbase were to start going it alone in the same way as some of its competitors, it would mean some loss of trust.

Anyway, back to the topic at hand. So Coinbase knocks on the door of the SEC and provides all the documentation it needs. But none of that helps. The agency refuses on the grounds that the action proposed by Coinbase involves securities.

No other details were provided.

Of course, this is curious in that other exchanges offer similar products without problems. Even a Bitfinex or Anycoin Direct could presumably launch such a product without any problems.

“No problem” in the sense of no starting problems. How it should be judged legally, of course, remains an open question.

So, strictly speaking, Coinbase was punished for requesting and following the rules.

By the way, this is not about highlighting Coinbase in a big way. There are also enough reviews on the exchange. However, the case is particularly well suited to demonstrate the legal uncertainty that remains regarding these types of platforms.

The special case of DEXs (Decentralized Exchanges)

With Binance, Bison and Kraken, the case may be clear. But what about decentralized exchanges (DEX)?

DEXs are part of the DeFi environment and are referred to in some places as the future of trading platforms.

The biggest difference with centralized exchanges essentially lies in three things:

  • Smart contracts often manage order fulfillment,
  • DeFi allows investors to reduce fees and other rewards,
  • The platforms are based on decentralized feet.

So from an investor perspective, totally positive. From the perspective of the traditional financial market, not without restrictions. For regulators even a thorn in the eye.

DEXs are often inherently designed in such a way that they could fundamentally evade regulation. But what about KYC (Know Your Customer), deposit insurance or customer support?

There are three possible scenarios here:

  • Trading on a DEX is declared illegal if there is no centrally responsible entity.
  • Despite the ban, investors trust the platforms and still use them.
  • All DEXes that want to survive become semi-centralized and are subject to the same laws and regulations as any other exchange.

So this area remains particularly exciting!

DeFi versus the traditional financial system. A battle that will probably be won by DeFi – in part!

We are seeing an evolution in which traditional centralized financial models are becoming less and less important and decentralized solutions such as DEX are becoming more and more important.

However, this means at the same time that income from, for example, fees for acquiring and trading cryptocurrencies or interest from credit transactions is also distributed to more and more hands – because everyone can to participate.

We can predict that this development will be massively opposed and that strong lobbying will take place against it. No one likes to have butter removed from their bread.

However, as with any innovation – and DeFi is undoubtedly one – one can assume that it will eventually prevail.

The benefits are too great to be nipped in the bud by law and extreme regulation.

Countries that strike a good balance here will become pioneers in these areas. Those who refuse to do so will fall behind. In other words, this is a classic game theory situation where you have to make your moves carefully. Incidentally, it is this competitive situation that could lead different countries not to tighten the screws too much on cryptocurrencies.


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Regulating Crypto Exchanges: What Does It Mean For Crypto And DeFi? – Tech Tribune France


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