How will Coinbase’s new proposal break the regulatory dilemma in the crypto industry?

Brian Armstrong, CEO of Coinbase , the leading US crypto exchange , said in a tweet yesterday that Coinbase has launched its digital asset policy proposal, hoping to define the US’s regulation of cryptocurrencies and Web3. 

The official name of the proposal is “Digital Asset Policy Proposal: Protecting America’s Financial Leadership”, hosted on GitHub, and aims to trigger a conversation about regulatory encryption by changing the high-level views of today’s financial institutions.

“It is vital to make this industry clear,” Armstrong wrote on Twitter. 

Armstrong believes that although Coinbase has shared this initiative, it is not just about Coinbase, but a collective industry aimed at achieving tolerance and democracy. 

“Our policy recommendation is to make more crypto startups possible, to provide ordinary consumers with better financial services, and to help the United States stay on the cutting edge of innovation, entrepreneurship, and technology.” 

In recent weeks, Coinbase has held more than 75 meetings with legislators, other digital asset companies, cryptocurrency innovators and academics, and their feedback also reflects the recommendations in the Coinbase proposal. The key points:

First, the government should regulate digital assets under the new framework. The existing financial supervision system cannot operate effectively for the open and decentralized network of the encryption industry. Regulation is built around a series of financial intermediaries, such as transfer agents, clearing houses, and traditional brokers, which have no role in crypto transactions.

Second, the responsibilities of this new framework should be assigned to a single regulatory agency and a new registration process should be established for the digital asset market. According to the tradition of other markets, a special self-regulatory organization should be established to strengthen the regulatory system and conduct more detailed supervision of such markets. Together, they can make new rules for everyone. The current encryption industry is dealing with a series of regulatory agencies in the United States-it is impossible for entrepreneurs and the public who rely on their protection to piece together.

Third, this separate framework should have three goals to ensure that holders of digital assets are authorized and protected: 1) Increase transparency through appropriate disclosure requirements. 2) Prevent fraud and market manipulation. 3) Improve efficiency and enhance market resilience. Each of these goals should be achieved while recognizing that encryption has unique and novel characteristics.

Finally, it is important to promote interoperability and fair competition. In order to fully realize the potential of digital assets, the digital asset market must work together with the products and services of the entire encrypted economy. If fully realized, this can promote competition, encourage responsible innovation, and promote a prosperous developer ecosystem. No company, including Coinbase, should be the gatekeeper of this industry.

Analysis of the operational framework of digital asset policy proposals

1. Supervise digital assets under a separate framework

1. Define digital assets as: financial assets issued and transferred using distributed ledger or blockchain technology. “Financial assets” include assets whose main purpose is as a means of payment, a medium of exchange, a means of value preservation, or as a financial benefit in other ways.

2. When creating a new regulatory framework for digital assets, Congress should legally recognize that all digital assets, including digital native versions of traditional financial assets, should be subject to the new digital asset regulatory system.

2. Designate a new regulatory agency for the digital asset market

1. The authority of the agency will include

  • A new registration process established for the Digital Asset Market (MDA).
  • Appropriate disclosure to notify purchasers of digital assets.

2. Digital asset market regulations should support the efficiency advantages of straight-through processing.

3. The digital asset market should be authorized to perform the full life cycle of digital asset services, including digital asset transactions, transfers (such as wallet services), custody, clearing, currency payments, mortgages, lending, and related ancillary services.

4. Regulators should be authorized to provide different registration paths for different types of digital asset markets according to the scope of activities provided.

5. Regulations should focus on all market participants (ordinary investors and institutions) to conduct digital asset transactions on an equal and open basis.

6. A special self-regulatory organization (SRO) should be established to strengthen the supervision system and conduct more refined supervision of the digital asset market.

  • All registered digital asset markets should be members of self-regulatory organizations.
  • Self-regulatory organizations should establish a self-certification process, which the digital asset market will use to enable digital assets to be traded on its platform.

7. This framework will take precedence over registration in the states and clarification of relevant regulatory requirements.

8. A platform that does not custody or otherwise controls customer assets needs to be essentially different from the digital asset market that holds and controls customer assets, so this framework is not involved.

3. The new framework should be guided by three goals

1. Increase transparency through appropriate disclosure (publication)

  • New designated federal regulatory agencies and new self-regulatory organizations must also adopt a flexible approach to the disclosure rules applied by regulations in practice.
  • If additional guidance is needed, there should be a straightforward process to obtain timely, case-specific, explanatory or exempt help.
  • For digital assets related to debt or equity securities, many of the current securities disclosure requirements may be appropriate.
  • More mature, popular and decentralized digital assets, such as Bitcoin and Ethereum , do not require continuous disclosure.
  • Digital tokens that are in the early life cycle and have not yet been decentralized should have a minimum of disclosure.
  • Fund-backed digital assets, such as stablecoins and other digital assets linked to a specific value or legal tender, and ensuring that they maintain a reserve of linked assets require different types of disclosures. Disclosure should be appropriate to the way they are used, which is fundamentally different from money market funds.
  • The information environment of digital assets should pay attention to the material characteristics, benefits and risks of the assets themselves. This includes basic information about the project that investors may be most relevant in their purchase or investment decision.
  • Disclosure requirements must be flexible, so they can be easily applied to a wide range of digital assets, which will make them flexible in the face of future innovations.

2. Prevent fraud and market manipulation

  • The digital asset market needs to provide necessary disclosures and information about the digital assets it supports.
  • A certain digital asset establishes the requirements and mechanisms required to execute transactions on the market platform, including order book matching.
  • The digital asset market strictly monitors the trading activities on its platform and executes its trading requirements.
  • The digital asset market should provide the public with clear information about its operations.

3. Improve efficiency and enhance market flexibility

  • Digital asset market regulations should take into account that market participants can directly access exchange services instead of using broker-dealers as intermediaries.
  • Regulations should establish basic requirements around network, operational integrity and resilience.
  • Regulations should include requirements for the transparency of digital asset transactions on the platform.
  • Regulations should include the control of asset custody and use, solve financial stability by requiring the digital asset market to maintain sufficient capital and liquidity, promote customer portability, promote interoperability, and provide services and related fees. Provide clear disclosure.
  • The digital asset market will need to implement a compliance plan, including the coverage of the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) requirements. Customizing appropriate customer identification, transaction monitoring, SAR filing requirements, and the Office of Overseas Assets (OFAC) and sanction screening obligations should all be retained as available resources.
  • The digital asset market should be required to mitigate the disclosure of potential conflicts of interest.
  • The digital asset market must also consider and resolve the risks arising from the role played by market makers and other liquidity providers in their trading venues.

4. The above-mentioned regulations or institutions should be implemented after recognizing the unique characteristics and risks of digital assets.

Fourth, promote interoperability and fair competition

1. The digital asset market must be interoperable with products and services in the entire encrypted economy.

2. The new regulatory framework should encourage communication, competition, and crossover between agreements, applications, and the digital asset market.

There were mixed reviews of the proposal

The regulatory dilemma that Coinbase faces is not unique, but they are one of the larger companies in the industry. 

According to previous reports, OKcoin CEO Hong Fang said: “The establishment of industry regulations requires more community participation, because Coinbase has a great say in this field, especially in terms of regulatory dialogue. I just don’t Hope there is anything misleading or not capturing the whole picture in front of the regulators.” 

Hong said that regulating the crypto industry is a complex issue, and if Coinbase is the only company that has a place on the negotiating table, it will be harmful to the industry. At the same time, the regulation of the crypto industry does not conform to the founding principles of cryptocurrency in many respects. 

“In terms of protecting customers, encryption technology is trying to play a role in replacing supervision,” she said. “You want to come up with something that encourages agreement-level participation and autonomy to ensure that customer protection is included in the agreement and there is sufficient security, and then this should really be the work of the algorithm.” 

And Emilie Choi, COO of Coinbase, said: “I think we are now under the supervision of more than 50 regulatory agencies, and I think it’s actually much more than that. If we struggle with this, what will our customers be able to do? ? This is part of the reason why we feel we need to make more public the proposal and find out what works for everyone.”

During his participation in Anthony Pompliano’s Best Business Show in September, Coinbase CEO Armstrong shared that he believes that the strong demand for crypto industry regulation is a “positive trend”. He pointed out that whenever he visits Washington, DC, many people he talks to regard the crypto industry as a risky sector for illegal activities. Having said that, Armstrong believes that half of the regulators now realize that encryption is a very important industry for the United States.  

“If someone does not meet and talk with us, my optimistic view is that we can change this situation. However, if I cannot get effective supervision, I will go out and talk about it publicly. I think this is a kind of Accountability system.”

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Leave a Reply