WEF publishes recommendations for crypto regulation

The World Economic Forum (WEF) is also not unaffected by the advancing crypto industry. In a new research the WEF extensively discusses the need for crypto regulation, and indicates how this can best be implemented.

Crypto sector is unique

The crypto industry is unique and relatively new. That is why governments have so far had great difficulty in drawing up clear rules. Often lawmakers have to build these crypto regulations from the ground up. Legislators face multiple challenges, the study said.

“Crypto assets and their infrastructure do not always fit easily into the existing mediation style of legislation, even when crypto activities resemble those in the traditional financial sector.”

Components of the crypto sector that are completely foreign to lawmakers often have a high degree of anonymity. Examples are crypto mixers, self-custodial wallets and decentralized exchanges (DeFi). Another major pain point, according to WEF’s research at least, is the high risk of “contamination” of the traditional financial industry from the crypto sector.

This last point may have some truth to it. But it is important to mention that the reverse is also possible. Not very long ago, we saw that problems in the traditional financial sector caused major problems in crypto land.

For example, the American Silicon Valley Bank (SVB) collapsed in March after serious liquidity problems. Circle, the crypto firm behind stablecoin USDC, was found to have major exposure to SVB. Panic broke out and USDC briefly even lost its peg (link) with the dollar. Fortunately, the panic quickly passed, but it showed how ‘TradFi can certainly also negatively affect the crypto sector.

The approach in the US is a bad example

Back to the WEF research. The research emphasizes the importance of collaboration between the crypto sector and legislators: “Policy makers and shareholders in the (crypto) sector need to collaborate across multiple jurisdictions to ensure consistency and clarity,” the study argues.

The WEF also indicates what not to do. Regulation through strict enforcement is not the intention. The study cites the situation in the United States as an example of this. The SEC is anything but helpful to the US crypto industry, and that is putting it mildly.

“This approach is not recommended to build a legislative framework. ‘Regulation through strict enforcement’ prevents all meaningful discussion that determines what should and should not be regulated.”

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