Valentina Drofa is the founder and CEO of Drofa Communicationsan international public relations consultancy for financial and fintech companies.
The crypto industry is developing rapidly, while regulators around the world are struggling to keep up with it and figure out how to fit this new economy into the traditional market. But as they try to find the best ways to develop new regulations on the international stage, the industry needs to regulate itself to build trust with the global community.
Some prominent players in the market, such as base of coins Y Gemini exchanges, along with major crypto investors such as Andreessen-Horowitz (a16z), believe that traditional agencies are not adequate to supervise the development of this sector. They believe that these organizations do not have the right tools or experience, and have so far been struggling to apply decades-old rules to the new industry.
Leaving aside the question of whether traditional regulators can adequately accommodate the cryptocurrency sector, I believe that more emphasis should be placed on the work of specialist associations and working groups within the industry itself.
If the cryptocurrency sector does not want to be governed by the same framework as traditional finance, its members must come together to create general guidelines that maintain the mottos of blockchain. And the task of supporting the development of regulations in crypto and blockchain should be better suited for self-regulatory organizations (SROs) to tackle.
The crypto industry working towards the same goals
Both the crypto industry and regulators want to protect investors and ensure market integrity. Ideally, an SRO should be a highly respected body, bringing together industry representatives dedicated to its development. To join such organizations, it should be essential to have a thorough enrollment screening with background checks and a thorough assessment of how the applicant company can contribute to the future and democratization of this industry.
SROs in the crypto industry could avoid excessive centralization of power to define rules and monitor compliance.
With the experience and resources of its members, for example, this type of organization could oversee the need to create frameworks for new products with the agility that this dynamic industry requires.
To give an example, Japan is at the forefront of crypto regulations and is an example of an SRO that works well with local official organizations. Since 2020, the country’s main regulator, the Financial Services Agency, has officially recognized two crypto self-regulatory organizations. There, both the SROs and the government have been working together to develop laws and guiding principles.
There are numerous crypto associations around the world, however they do not seem to be making much headway. Unfortunately, many of them end up becoming self-interested lobby groups, with membership based on willingness to pay to join. At best, they encourage data-sharing practices among members, but even that is done more to identify potential customers and maximize profits than to significantly improve the market. Meanwhile, the needs and uncertainties of the average user remain unanswered.
To show any improvement, SROs and their members must address strong compliance and governance standards. They must maintain the focus on the protection of users and strengthen operational legal certainty, respecting the protection of the privacy of user information, among other things.
It is necessary to have strong accountability and oversight, with transparency of the association’s activities.
Organizations have to maintain communication with other local and international regulatory actors. And its members must also be prepared to accept penalties and sanctions for non-compliance with the principles of the association.
Based on these premises, it is my opinion that this sector would benefit from centralizing its efforts in one or two representative self-regulatory bodies made up of people who have a real interest in the industry, with a proper understanding of its performance and potential, and long-term interest in promoting the mass adoption of crypto.
Regulating and educating must always work together
Another important point to raise is that SROs should not only work with regulators and politicians to create rules, but also conduct social campaigns targeting the general public about crypto and blockchain.
Education is the only way to increase transparency and ensure awareness of the potential risks crypto investors would face. Topics such as market volatility, potential threats, and the security of personal information are critical to improving financial education and helping the crypto industry advance.
Some of the major crypto companies, such as Binance Academy Y crypto.com University They have already been carrying out this type of initiative, offering free educational content with the purpose of enlightening users about the world of cryptocurrencies and the blockchain.
However, such measures are not only limited in scope, but are also mainly carried out as part of the marketing strategies of those companies.
As companies, their main objective with such initiatives is to create a more positive image of themselves in the market and attract more customers, rather than to genuinely change the state of the market itself.
Crypto assets were created to exist in cross-border networks. Therefore, the regulation of this industry must be analyzed in the global context.
There have to be deep discussions, involving not only governments and regulators, but also official representatives of the cryptocurrency industry itself.
An independent SRO-like entity, empowered and recognized by the international community, could have a significant impact on the credibility of the crypto industry and its long-term integrity.
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