“It’s a great learning moment for the industry,” says Hayden Adams, creator of UniSwap, the world’s largest decentralized exchange (DEX). “The fact that [FTX founder Sam Bankman-Fried] had the ability to [what he did] talks about the fact that he was building a centralized product over which he had complete control.
Unlike traditional exchanges, which allow people to exchange regular currencies for crypto assets and store on behalf of customers, DEXs never take control of customer funds and transactions are conducted on a peer-to-peer basis. peer. According to Adams, this decentralized model eliminates the middleman risk that contributed to FTX ending up in hot water in the first place.
UniSwap is still a work in progress from a user experience perspective. “If you were to compare us to the Internet, we’re still in the age of dial-up,” says Adams. But he thinks DEXs will eventually supplant exchanges like Binance as the go-to vehicles for crypto trading.
None of the measures that crypto exchanges are putting in place will prevent the period of heightened regulatory scrutiny that should now begin.
To date, efforts to regulate crypto companies have moved too slowly, in part due to the complexity of the underlying technology, says Charley Cooper, former COO of the Commodity Futures Trading Commission (CFTC) in the USA. But the scale of FTX’s collapse is likely to ignite a fire under regulators around the world.
Some have pointed out that high-profile meltdowns have occurred repeatedly in traditional finance, which could set a useful precedent for crypto regulation. Justin Sun, founder of the TRON network and member of the advisory board of Huobi Global, says that crises in financial institutions have generally been followed by “heightened regulation and supervision”. [that] has served to strengthen the industry”, and that “it is almost certain that the virtual asset industry will follow the same path”.
The EU has been working for two years on a new set of laws that will apply to crypto organizations, known as Markets in Crypto Assets (MiCAs), designed to protect both consumer funds and financial stability. The details have now been finalized and are ready for voting in February 2023.
If passed, MiCA will prevent crypto firms from using accounting tricks to blur the line between their own funds and those of their clients, an offense that appears to have played a significant role in FTX’s downfall. “If the MiCA was applied, [the FTX collapse] wouldn’t have happened that way,” says Stefan Berger, a German Member of the European Parliament (MEP) who is leading the effort on the new legislation. “The FTX case is the Lehman Brothers moment for crypto. What the cryptosphere needs now is trust, and to build trust you need clear rules and regulatory clarity.
Meanwhile, in the United States, the Biden administration described in September plans to regulate the crypto industry for the first time. The new framework aims to fight fraud and ensure financial stability, while leaving enough room for innovation and entrepreneurship. This is a difficult balance to strike, however, and questions remain about which regulator should take the lead, the Securities and Exchange Commission or the CFTC.