Expressing frustration regarding the existing state of cryptocurrency regulation, Ethereum co-founder Vitalik Buterin, proposed a solution to address the challenges faced by developers in the industry.
In response to a user on Warpcast, a social media platform built on the Farcaster protocol, Buterin highlighted a key issue with current regulatory efforts, particularly in the US, where well-intentioned cryptocurrency developers find themselves in a difficult situation.
“The main challenge with crypto regulation (especially in the US) has always been this phenomenon where if you do something useless… you are free and clear, but if you try to give your customers a clear story of where returns come from… then you’re screwed because you’re ‘a security,” said Buterin.
According to Buterin, this “anarcho-tyranny” creates a problematic incentive gradient that is worse for the crypto space than either pure anarchy or tyranny.
On one hand, there is an abundance of bad actors, scammers, and hype-driven individuals taking advantage of the lack of regulations. On the other hand, sincere developers who strive for transparency and clarity face regulatory challenges due to the classification of their offerings as securities.
Buterin’s Solution to Crypto’s “Anarcho-Tyranny” State
To address crypto’s “anarcho-tyranny” issue, Buterin put forward three recommendations. First, he proposed limiting leverage to prevent excessive risk-taking.
Second, he suggested implementing audits and transparency requirements to enhance accountability. Finally, he mentioned the idea of knowledge tests to ensure that users have a basic understanding of cryptocurrencies before engaging with them.
While the feasibility of knowledge tests at the regulatory or individual level remains uncertain, placing limits on leverage and mandating audits and transparency reports could be achieved through policy measures.
Buterin acknowledged that the US, with its significant number of cryptocurrency users, follows a regulatory approach that is often perceived as nebulous or inconsistent within the crypto community.
He emphasized the need to shift the focus toward providing more protections to companies and projects with a clear long-term vision and plan.
“I would much rather see us move to the opposite situation, where issuing a token without giving a clear long-term story for why it will maintain or increase in economic value is the riskier thing,” he said.
Europe’s MiCA Finally Arrives
The remarks from Buterin come as the European Union’s Markets in Crypto-Assets (MiCA) regulatory framework has taken effect starting Sunday.
MiCA’s stablecoins regulation is HERE!
But what now?
With many aspects still undefined, we are just at the starting line. In the meantime, you can re-watch our LinkedIn Live for thoughtful insights on what’s next.https://t.co/x5ctPrWrvx pic.twitter.com/VKfnNOF2dp
— European Crypto Initiative (@EuCInitiative) June 30, 2024
On 30 June 2024, MiCA’s jurisdiction officially extended to stablecoins. Under the new law, to issue stablecoins within the EU, companies must possess an e-money license and prove that they have adequate reserves to maintain the peg.
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MiCA’s implementation is part of a broader effort to bring the crypto industry in line with traditional finance regulations.
Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.
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