It is safe to say that this past week has been nothing short of shocking within the Crypto community. Some have called FTX’s collapse Crypto’s “Lehman Brother’s moment” and it truly feels that way. FTX was a household name, was one of the most trusted and popular exchanges for Cryptocurrencies. They reportedly had over a million active users prior to the collapse and subsequent bankruptcy.
We are slowly fully understanding the full scale of this solvency issue and just the number of people who have been impacted. Throughout the industry there is a push for regulations to be put in place to prevent such issues from occurring again. As of now, there is very little, if any regulations and laws protecting consumers in the crypto world. Should a company go bankrupt, as is the case with FTX and TerraLuna for example, there is very little customer protection laws that aid and support customers. The Crypto world in large is still in its infancy and laws are slow to catch up to the industry but there is a greater push now.
CZ, the CEO of Binance is pushing to ensure that such a large scale problem does not occur again. In a tweet he stated, “To reduce further cascading negative effects of FTX, Binance is forming an industry recovery fund, to help projects who are otherwise strong, but in a liquidity crisis. More details to come soon. In the meantime, please contact Binance Labs if you think you qualify.”
European financial stability watchdogs on Thursday called for urgent action to regulate crypto conglomerates, as markets reel from the apparent collapse of major exchange FTX. The message from the Financial Stability Board’s (FSB) European chapter is the latest signal that market turmoil will mean sweeping new rules for the sector, given its increasing sway over conventional financial markets. “In light of recent developments, decentralized finance, trading platforms and so-called crypto conglomerates and exchanges that vertically integrate multiple functions deserve urgent regulatory attention,” the FSB Europe Group said in a statement after a regular meeting in Lisbon.
The group, chaired by officials from the Swedish central bank and U.K. Treasury and including financial authorities from France, Germany and the European Union, suggested it would take as a blueprint a recent FSB regulatory plan that could force conglomerates to break up and stablecoins to centralize governance. The FSB was responsible for the slew of global regulations on the financial sector that followed the 2008 crisis. While officials have warned crypto can be risky for investors, they have generally downplayed the threat to the financial system as a whole, as turmoil in the crypto sector doesn’t usually spill over into the banking or insurance sector – but that could soon change. Attendees were told of the “growing interlinkages between crypto-asset markets and the traditional financial system” ahead of their discussion, the statement said. Revelations made by CoinDesk last week about FTX’s relation to the supposedly separate trading arm Alameda have led to a liquidity crisis, a now-abandoned rescue offer from rival exchange Binance and a promise to wind down Alameda, though CEO Sam Bankman-Fried has said the company remains solvent.
Another potential solution and one that old-school crypto investors and miners have been advising for years is “not your keys, not your coins” which essentially suggests that people should switch from CEX to cold and hardware wallet alternatives. As we’ve seen this past week there are some serious practical drawbacks to entrusting your crypto funds to a third party. These fall roughly into two categories: security risks and loss of control.
Crypto novices and enthusiasts should do their research beforehand when looking at their options to determine which is the best one depending on their needs.
Sources:
- https://www.coindesk.com/policy/2022/11/10/crypto-conglomerates-require-urgent-regulatory-attention-european-watchdogs-say/
- https://twitter.com/cz_binance/status/1592044496174612482?s=20&t=QL01bG78F35gB_IT0MOX8Q
- https://www.coindesk.com/policy/2022/10/11/comprehensive-international-crypto-rules-proposed-by-influential-finance-watchdog/
- https://medium.com/stakefish/not-your-keys-not-your-coins-fad3d43c2713
- https://www.gemini.com/cryptopedia/crypto-wallets-hot-cold
