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Regulation Overview of the Crypto landscape

In light of the recent developments in regulation surrounding crypto, I thought of sharing an overview on it. Made a summary [post](https://ethan-tan.com/regulation-overview-of-the-crypto-landscape/) on the latest developments in regulation on crypto in some of the key economies, e.g. US, EU, China, etc.

# Regulation Overview of the Crypto landscape

The rise of every new technology or industry comes with added regulatory scrutiny, as we’ve witnessed with the [internet](https://www.tandfonline.com/doi/abs/10.1300/J103v26n01_06?journalCode=wbss20), social [media](https://www.cfr.org/in-brief/social-media-and-online-speech-how-should-countries-regulate-tech-giants), [ridesharing](https://www.barrons.com/articles/regulatory-headaches-arent-going-away-for-uber-and-lyft-51598642257),and many other sectors. Regulators are treading a fine line between regulating it with the right approach, which will enable the industry to prosper and gain mainstream adoption, or by over-regulating it, which may inhibit its potential. Finding the right balance when navigating through areas for regulation in new technologies can be challenging but a task that regulators need to embrace. New technologies and industries can bring massive benefits to the community through economic growth, improved quality of life, etc but at the same time without adequate regulations, bad actors may thrive in extracting value from genuine participants. The following quote illustrates the thinking behind regulating with the right approach: “Speed limits and traffic lights provided public safety but also helped cars become mainstream. It is only with bringing things inside—and sort of clearly within our public policy goals—that new technology has a chance of broader adoption”. The current regulation outlook revolves around two key areas: 1) KYC/AML compliance and 2) classification of securities.

### Regulation Landscape

Cryptocurrencies and Digital Assets have evolved tremendously since the publication of the Bitcoin Whitepaper in 2008, which kickstarted the industry to life. Simultaneously, as the industry grew to attract more participants, capital, and other resources into the mix, regulating the landscape needs to evolve to accommodate it. Crypto is at the cross juncture now as regulators see the need to implement tighter policies to regulate the industry in the interests of participants in the industry, while participants, builders in the industry are iterating at breakneck speed and are worried that regulations may impede their progress.

# DeFi Regulation

Decentralized Finance (DeFi) has largely been unregulated in major jurisdictions, as participants interact with smart contracts to trade and conduct other financial activities without a middleman or centralized entity. Developers of these applications believe that DeFi applications are not subjected to current regulatory requirements as core developers will step away from the project after writing software that automates and facilitates users’ transactions with the protocol thereby achieving decentralization in the process, similar to the SEC’s stance on Bitcoin. However, SEC chairman Gary Gensler takes on a different view such that “there’s still a core group of folks that are not only writing the software, like the open-source software, but they often have governance and fees,” where “there’s some incentive structure for those promoters and sponsors in the middle of this.” Mr. Gensler also added that “these platforms facilitate something that might be decentralized in some aspects but highly centralized in other aspects.” Regulators stance on protecting investors interest in crypto has been clear, while DeFi currently does not require KYC/AML, or any safeguards against money laundering or other criminal activities, there may be some regulatory gaps that will be filled as regulators find a balance between regulating decentralized applications and ensuring investors interests.

It is clear that the crypto industry needs better defined public policies to take it mainstream and the current developments in the US will be watched by the world, and what eventually comes out of it will likely influence how regulators around the world view crypto.



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