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Regulate the central players but leave DeFi alone

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Coinbase CEO Brian Armstrong has pushed for stricter regulations on centralized crypto players but said decentralized protocols should be allowed to flourish given that open source code and smart contracts are the “ultimate form of disclosure.”

Armstrong Mutual He gave his views on cryptocurrency regulation on the Coinbase blog on Dec. 20 where he suggested how regulators can help “restore confidence” and move the industry forward as the market continues to recover from the damage it has caused. FTX and its shocking breakdown.

The Coinbase CEO emphasized that decentralized protocols are not part of that equation.

Decentralized arrangements do not involve intermediaries [and] Open source code and smart contracts are the “ultimate form of disclosure,” Armstrong explained, adding that “transparency is built by default” on the chain “in a cryptographic way” and should therefore be largely left alone.

The Coinbase CEO said that “additional transparency and disclosure” checks are necessary for centralized actors because humans are involved, with Armstrong hoping the fall of FTX “is the catalyst we finally need to pass new legislation.”

Exchanges, custodians, and stablecoin issuers are “where we saw the greatest risk of harm to consumers, and pretty much everyone can agree.” [that regulation] It must be done.”

Armstrong advised that the United States begin with stablecoin regulation in line with standard financial services laws, suggesting that regulators mandate implementation of a state trust charter or OCC national trust charter.

At this point in time, it was US Senator Bill Hagerty I entered The Stablecoin Transparency Act that is expected to soon pass the Senate in the coming months.

Armstrong added that stablecoin issuers should only be banks if they want partial reserves or invest in risky assets, but issuers must nonetheless meet “essential cybersecurity standards” and put in place blacklisting procedures in order to comply with the sanctions requirements. .

Once stablecoin regulation is settled, Armstrong suggests Regulators target cryptocurrency exchanges and custodians.

The Coinbase CEO suggested that regulators should implement a federal licensing and registration system to enable exchanges or custodians to lawfully serve people in this market, as well as strengthen consumer protection rules and prohibit market manipulation tactics.

As for commodities and securities, Armstrong admitted that Courts are still pondering things, He suggested that the US Congress require the US Commodity Futures Trading Commission (CFTC) and the Securities Commission (SEC) to designate both Top 100 cryptocurrencies by market capitalization as a security or commodity.

“If the issuers of the assets do not agree with the analysis, the courts can settle the cryptocurrency cases, but this will be an important mapped data set for the rest of the industry to follow because eventually millions of crypto assets will be created,” he said.

Related: DeFi Regulations: Where US Regulators Should Draw the Line

Given the international reach of cryptocurrency-based businesses, Armstrong also urged regulators from all countries to look beyond what happens within the local market to consider the effects a foreign company might have on its own citizens.

“If you are a country that is going to publish laws that all cryptocurrency companies must follow, then you need to enforce them not only domestically but also with companies abroad that serve your citizens,” Armstrong said, adding:

Don’t take that company’s word for it. In fact, check if they are targeting your citizens while claiming not to do so.”

“If you do not have the authority to prevent this activity […] “Companies will inadvertently be incentivized to serve your country from abroad,” Armstrong explained, adding that “tens of billions of dollars in fortunes have been lost” because nations have turned a blind eye to practices that victimized their nationals abroad.

In order to properly regulate the industry, Armstrong added, a collaborative effort will be needed from companies, policymakers, regulators and clients from financial markets around the world – particularly from G20 countries.

Despite the complexity and variety of issues that need to be resolved, Armstrong said he remains optimistic that significant progress can be made in 2023 on the legislative front.