• Regulated crypto sector as a condition for large-scale access by institutional investors
• Vitalik Buterin comments on controversial points in crypto regulation on Twitter
• Buterin: The ecosystem needs more time to mature
Despite their rising fame, cryptoassets are still relatively niche. It is widely believed that cryptocurrency regulation is necessary first before mainstream financial institutions make a major move and cryptocurrencies are fully legitimized as an asset class. A survey by financial services provider Fidelity also confirms that this perception is quite widespread. There, 16 percent of the more than 1,000 institutional investors surveyed said the lack of regulatory clarity was an obstacle to investing in digital assets. 33 percent also said they were concerned about the legal classification of certain coins.
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However, this issue may soon be resolved as authorities around the world are currently working on legislative proposals for the crypto sector. At the end of October, for example, a draft crypto law from the US Congress was leaked – and according to “BTC-ECHO”, it caused a big uproar in the industry, as observers say the law would be tantamount to a DeFi ban. However, Sam Bankman-Fried, CEO of crypto exchange FTX, welcomed the bill and outlined his version of crypto regulation in a blog post. However, he had to back down after strong opposition and has since revised his article. However, the recently erupted debate and the verbal attacks against Bankman-Fried meant that Ethereum founder Vitalik Buterin also felt compelled to speak his mind on Twitter.
The Ethereum inventor doesn’t want to bring the crypto sector into the mainstream just yet
It feels unfair that other people would be attacked by “Crypto-Twitter”, but he never stuck his own head out, Buterin wrote on the microblogging service in late October – and then explained his position on regulation in the crypto sector. He made it clear that he is glad that crypto hasn’t gone mainstream yet, as the entire ecosystem still needs time to mature before it gets even more attention. He doesn’t think “we should enthusiastically and headlong seek large institutional capital. I’m actually quite happy that many of the ETFs are delayed,” the Ethereum inventor said in his Twitter thread. He would prefer that crypto projects take longer to reach the mainstream, but regulation would leave the crypto space free to operate freely internally.
Basically, especially at this point, regulation that leaves the crypto space free to trade internally but makes it harder for crypto projects to reach the mainstream is much less bad than regulation that intrudes on how crypto works internally.
– vitalik.eth (@VitalikButerin) 30 October 2022
This is Buterin’s proposal for regulating the sector
Of course, for Buterin, preserving the DNA of the crypto sector is more important than driving rapid adoption. However, regulation can significantly alter this DNA. He therefore himself proposes a few measures that must correspond to the supervisory authorities’ goals. “Basically, there are two main classes of regulatory goals: (i) consumer protection, (ii) making it harder for bad guys to move large amounts of money,” says the Ethereum inventor. The planned procedure for customer identification on DeFi platforms – called Know-Your-Customer (KYC) – is not very useful. It would only annoy users, wouldn’t stop hackers and is already being implemented on crypto exchanges – where it makes more sense – according to Buterin. Instead, he makes three suggestions for regulating DeFi projects that he considers more useful: Limit leverage, test users’ knowledge, and be transparent about audits and security checks of the smart contract code.
Regs on defi frontends that *could* be more useful might include:
(i) limits on leverage
(ii) require transparency about what audits, FV or other security checks were performed on the contract code
(iii) use guided by knowledge-based tests rather than plutocratic minimum net worth rules
– vitalik.eth (@VitalikButerin) 30 October 2022
In addition, regulators should promote procedures that protect the privacy of DeFi users, Buterin added in another tweet.
Buterin’s stance is welcomed in the crypto industry
Unlike Bankman-Fried, the Ethereum founder received positive reactions to his proposals on Twitter. For example, Changpeng Zhao, founder of the crypto exchange Binance, responded with a “thumbs up” emoji.
– CZ 🔶 Binance (@cz_binance) 30 October 2022
Ryan Sean Adams, crypto investor and founder of Mythos Capital, an investment firm that holds crypto assets and services for crypto networks, also reiterated his support for Buterin’s proposal. Even Bankman-Fried rated the points as “quite reasonable” according to “Decrypt” and signaled that he would like to bring the Ethereum founder to Washington DC to make a differentiated contribution to regulation.