Crypto asset markets are going through their so-called “third winter”. Two things are needed to see them emerge stronger: smart regulation and action by reputable industry players to regain consumer confidence.
Following the insolvency of crypto service providers FTX and BlockFi and the collapse of TerraUSD (UST) and Terra (LUNA), the global crypto market capitalization fell to $858.43 billion as of December 1, 2022 , from highs of $3 trillion in the fourth quarter of 2021.
These high-profile failures have naturally unsettled investors ever since, but more than 300 million people use crypto worldwide, attracted by the transparency of transactions, efficiency by avoiding middlemen, speed and lower fees compared to traditional banking services.
As the use case becomes clearer, companies that remain on the right side of the law want to regain investor confidence in the crypto space as a whole.
At the same time, financial regulators are stepping up efforts to improve consumer protection in crypto markets and bolster stability.
Leading the way, the EU in September finalized the text of its Crypto Asset Markets (MiCA) regulations, which are expected to come into force in 2024. As part of the EU’s digital finance strategy, the MiCA will regulate crypto assets e-money tokens and tokens referenced by assets, commonly known as stablecoins, and crypto service providers.
Meanwhile, in the United States, an Executive Order on “Ensuring Responsible Development of Digital Assets”, issued in March, outlined the government’s approach to “addressing the risks and exploiting the potential benefits of digital assets and their underlying technology”.
Moving forward with sensible regulation
Major crypto firms, including Binance, which operates the world’s largest bitcoin and altcoin exchange, welcome the advent of sensible regulations that build consumer trust in crypto assets and enable responsible innovation in the whole sector. In fact, Binance claims that if these regulations had already been in place, coupled with adequate risk management and corporate governance practices, some of the market upheaval this year might have been avoided.
However, given the potential for regulatory divergence between different jurisdictions, Steven Christie, senior vice president of compliance at Binance, says frameworks should be “comprehensive and consistent” and align with the work done by standard setters. global organizations such as the Financial Action Task Force. .
Regulators must work hand-in-hand with business on enforcement to ensure a level playing field at all levels and create the framework that fosters innovation rather than hindering its opportunities. Binance also believes it has a fundamental responsibility to work with regulators and that a well-regulated crypto market provides better protection for everyday users,
Steven Christie, Senior Vice President of Compliance at Binance
Christie says that Binance and its local entities “have a policy of cooperation and compliance” with all legal information requests and legal inquiries from government, local regulatory authorities and law enforcement authorities regarding investigations, prosecutions and forfeiture actions.
The next generation of the Internet
Market regulation of crypto assets is essential if innovation, including the third iteration of the internet, Web3, is to accelerate. It is only when users have complete confidence in the technology that there can be mass adoption.
Web3 has the potential to shift power from big tech platforms to users who can take control of their interactions through decentralized blockchains and smart contracts. This creates the opportunity to return revenue to content creators and users who would be incentivized to innovate, test, build and evolve.
According to consultancy McKinsey, Web3 “could mark a paradigm shift in the business model of digital applications by making disintermediation central,” but they note that scaling requires proper regulatory oversight.
There’s no greater opportunity right now than in Web3, the next generation of the Internet. Binance’s mission is to be the infrastructure provider for the blockchain ecosystem. We are working on many Web3 experiences and solutions that will transform billions of people, starting with the freedom of money.
Mayur Kamat, Product Manager at Binance
“The biggest opportunities are often found in the emergence of new and disruptive technologies,” says Mayur Kamat, Product Manager at Binance. “And there is no greater opportunity right now than in Web3, the next generation of the Internet. Binance’s mission is to be the infrastructure provider for the blockchain ecosystem. We are working on many Web3 experiences and solutions that will transform billions of people, starting with the freedom of money.
A thriving, innovation-friendly Web3 ecosystem, fueled by sound regulatory frameworks, could propel countries to global leadership in the next wave of technological revolution.
Globally, Web3 startups have generated $89 billion in venture capital funding and can attract top talent.
Meanwhile, the growth of blockchain technology is set to become a key differentiator and a critical measure of international competitiveness over the next decade. By 2030, the blockchain market could increase global gross domestic product by $1.76 trillion.
Blockchain has increased the GDP of the United States by $407 billion, that of Germany by $95 billion, and that of the United Kingdom and Japan by $72 billion each.
A framework for stablecoins
MiCA will protect users of e-money tokens, which are an essential part of the crypto economy as they bring stability and strength to the market.
E-money tokens are pegged to fiat currency like US dollars or euros. They have the potential to transform cross-border payments on the wholesale, retail and remittance fronts.
Stablecoins bring significant advantages in terms of cost, time, access and transparency to cross-border payments, in line with the recommendations of the Financial Stability Board, with the added benefit of stability in value compared to non-cryptographic assets. guaranteed.
All factors that have seen the market capitalization of stablecoins drop from 23 billion euros at the start of 2021 to just under 150 billion euros in the first quarter of 2022.
MiCA will protect consumers by requiring issuers to build up a sufficiently liquid reserve, with a ratio of 1 to 1 and partly in the form of deposits.
Every e-money token user will be offered a permanent fiat redemption right for free. Additionally, the new rules will see major e-money tokens fall under the scrutiny of the European Banking Authority.
Enable responsible innovation
Future EU crypto regulations will also focus on the climate and social impact of the sector to encourage more environmentally friendly practices and limit money laundering.
Issuers of crypto assets will be required to disclose information on mining energy consumption and negative climate and environmental impacts. The increase in energy efficiency will benefit cryptocurrency users and the entire blockchain industry. In addition, it will improve the environmental credentials of the sector through sustainable innovation.
The regulations will also be designed to counter concerns about the potential use of crypto assets for money laundering for drug trafficking organizations and others — and the funding of what the US government calls “rogue regimes.” “.
Crypto-asset service providers are considered “obligated entities” under EU Anti-Money Laundering (AML) rules. They will be subject to customer due diligence, transaction monitoring, reporting and other anti-money laundering requirements, which in some cases go beyond the rules applicable to payment service providers.
These provisions are consistent with existing Binance policies. The company has one of the strongest AML policies in the fintech industry and plays an important leadership role in helping law enforcement in the fight against cyber and financial crime and terrorism.
Binance also leverages blockchain technology for social responsibility through Binance Foundation programs.
A legitimate system
A smart regulatory regime that emerges from constructive conversations between policymakers and industry players – and based on global standards – will improve the crypto asset space.
Not only will users feel more confident to participate in the marketplace, but vendors will be able to move forward with exciting new innovations that support efficient and modern financial architecture.
Binance is committed to working with regulators and policymakers to develop policies that protect consumers, encourage innovation, and legitimize this important industry.
Steven Christie, Senior Vice President of Compliance at Binance