Smart contracts shouldn’t be regulated the same as centralized custodians, argued the Coinbase chief.
In a recent blog post, Coinbase CEO Brian Armstrong shared a “realistic blueprint” for regulating cryptocurrencies and restoring trust in the industry following the collapse of crypto exchange FTX.
According to Amstrong, “regulation should be limited only to centralized actors” in the cryptocurrency industry, where transparency is limited.
For decentralized crypto products like decentralized finance (DeFi), decentralized autonomous organizations (DAOs), and self-custodial wallets, financial regulators shouldn’t play a role here, as “transparency is built in by default” in decentralized crypto products, he argued.
Specifically, self-custodial wallets should be treated as “software companies," and decentralized protocols should be treated as equivalent to “open source code.”
Though money is transferred through these platforms, they shouldn’t necessarily be regulated as a “financial service business” as these products never take possession of customer funds, he added.
Coinbase CEO turns to Stablecoins, Howey test updates
Decentralized stablecoins are a “good place to start” in an attempt to regulate the industry, said the Coinbase CEO.
Stablecoins issuers could be regulated under “standard financial services laws” by registering themselves as a state trust or OCC national trust charter. This would require these firms to hold assets 1:1 with exposure only to high-quality assets like treasuries.
Among other requirements, Armstrong advocated for stablecoin issuers to undergo annual audits, be SOC compliant (cybersecurity standard), and have a “blacklist capability to meet sanctions requirements.”
After reigning in stablecoins, he also highlighted the need for more clarity around which assets in the crypto market are commodities and which are securities.
“Perhaps the most complex point that needs clarity is around which crypto assets are commodities and which are securities,” wrote Armstrong.“The CFTC and SEC have been debating this issue in the U.S. for several years now, but unfortunately, they haven't provided any clarity to the market.”
The Coinbase chief also called on Congress to step in and pass legislation for classifying cryptocurrencies with a new version of the Howey test.
“I'm optimistic that we can make significant progress on the above in 2023 and pass crypto legislation,” wrote Brian. “Coinbase will be working hard to help make this happen.”
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