Coinbase CEO Brian Armstrong has pushed for tighter regulations on centralized crypto players, but says decentralized protocols should be allowed to thrive given that open source code and smart contracts are “the way final disclosure”.
Armstrong shared his views on cryptocurrency regulation in a Dec. 20 Coinbase blog where he proposed how regulators can help “restore trust” and move the industry forward as the market continues to recover from the damage caused by FTX and its shock collapse.
But decentralized protocols are not part of that equation, the Coinbase CEO stressed.
“Decentralized agreements do not involve intermediaries [and] Open source code and smart contracts are “the ultimate form of disclosure,” Armstrong explained, adding that on-chain, “transparency is built in by default” in a “cryptographically provable way” and, as such, it should be left alone.
8/ To get there we must preserve the innovation potential of this technology. Regulation should focus on intermediaries (the centralized players in cryptocurrency), where more transparency and disclosure is needed.
— Brian Armstrong (@brian_armstrong) December 20, 2022
Coinbase’s CEO said that “additional transparency and disclosure” controls are needed for centralized actors because humans are involved, with Armstrong hoping that the fall of FTX “will be the catalyst we need to finally pass new legislation “.
Exchanges, custodians and stablecoin issuers are “where we’ve seen the greatest risk of consumer harm, and almost everyone can agree [that regulation] it should be done,” he added.
Armstrong advised that the US begin regulating stablecoins under standard financial services laws, suggesting that regulators enforce the implementation of a state trust letter or a national trust letter from the OCC .
Right now, US Senator Bill Hagerty has introduced the Stablecoins Transparency Act which is expected to soon pass the Senate in the coming months.
Armstrong added that stablecoin issuers should not be banks unless they want fractional reserves or invest in risk assets, but that issuers should nevertheless meet “basic cybersecurity standards” and establish a blacklisting procedure to comply with the penalty requirements.
Once the regulation of stablecoins is settled, Armstrong suggests that regulators target cryptocurrency exchanges and custodians.
Coinbase’s CEO suggested that regulators should implement a federal licensing and registration regime to allow exchanges or custodians to legally serve people in this market, as well as strengthen consumer protection rules and prohibit market manipulation tactics.
On commodities and securities, Armstrong acknowledged that while the courts are still sorting things out, he suggested that the US Congress should require the US Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) to categorize each of the top 100. cryptocurrencies by market capitalization as securities or as commodities.
“If asset issuers disagree with the analysis, the courts can resolve extreme cases, but this would serve as an important set of labeled data for the rest of the industry to follow, as ultimately instance, millions of crypto assets will be created,” he said. said
Given the international reach of cryptocurrency-based companies, Armstrong also urged regulators in all countries to look beyond what’s happening in their domestic market to consider the implications a foreign company may have for its citizens. .
“If you’re a country that’s going to publish laws that all cryptocurrency companies have to follow, you’re going to have to enforce them not just domestically, but with companies overseas that serve your citizens,” Armstrong said, and added:
Don’t take this company’s word for it. In fact, go check if they’re targeting your citizens while they say they’re not.”
“If you do not have the authority to prevent this activity […] you will inadvertently incentivize companies to serve your country from abroad,” Armstrong explained, adding that “tens of billions of dollars of wealth have been lost” because countries have turned a blind eye to which practices have been victims of their subjects abroad.
Armstrong added that for the industry to be properly regulated, it will take a collaborative effort from companies, policymakers, regulators and clients of financial markets around the world, especially those in the 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.
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