Who will restore trust in cryptocurrencies?
2022.12.23 02:37
Who will restore trust in cryptocurrencies?
Budrigannews.com – The crypto industry has experienced a turbulent year. In a flash, the market lost $50 billion due to the demise of the TerraUSD (UST) algorithmic stablecoin and the Terra ecosystem. And just recently, FTX, a stock exchange that many people thought was “too big to fail,” failed. There has been a lot of drama in the industry, which has seen well-known projects and businesses fail and investors lose their money.
Given this year’s events, the space will undoubtedly receive significant government attention in all major jurisdictions within a few months to at most a few years, rather than decades. Prior to the recent FTX saga, this was fairly obvious to the majority of industry observers, and it has since become glaringly obvious.
In the community, there is a lot of debate regarding whether this is beneficial. The overall health of the economy and the protection of end-users from being fleeced and misled by financial operators of all kinds are the goals of financial regulation. Additionally, it is evident that the effectiveness of current financial regulations in these areas varies greatly. Also, it’s not clear what kind of rules could be put in place that would really help the business and its customers.
In order to make sure that crypto gets its house in order, perhaps we ought to concentrate our efforts elsewhere rather than on regulation. The three main advantages of crypto rating agencies—community-driven organizations that evaluate projects—as well as ways in which they could address crypto’s problems are outlined below.
The crypto industry is dynamic and ever-evolving. There were nearly 2,000 new cryptocurrencies created between November 2021 and November 2022, representing a nearly 25% increase in the total number of currencies. Projects and tokens are constantly being added.
Even though some of the projects that are being presented are novel and push the boundaries of technology, there may be numerous risks that participants need to avoid. Early crypto innovations were based on the cypherpunk ethos that the space should be anonymous. However, when this anonymity is combined with a large number of relatively ignorant customers, a favorable environment for fraud, scams, and pyramid schemes is created.
Regulators might have a problem with this because putting policy into action takes time. For instance, it took more than two years to draft and approve the European Union’s Markets in Crypto-Assets framework. The space will have moved on to new dangers during the review and implementation of protective measures.
The opposite would be crypto rating agencies. They would be at the cutting edge of the business. They might be able to analyze the algorithms, structures, communities, risks, and rewards of a variety of products for customers in a fairly objective, unbiased way, and they could do so quickly enough to keep up with the growth of these new products.
Terra was a great illustration of how this would work. There were people in the space who were aware that Terra’s tokenomics were flawed, which ultimately led to its demise. The same understanding would not be available to those who do not have a background in tokenomics or quantitative finance. Furthermore, regulators were unaware of Terra until its demise; Therefore, they were unable to shield investors from it. Investors can quickly learn about projects’ underlying problems and decide whether they want to take the risk by having reputable, knowledgeable bodies evaluate them and the businesses in the sector.
Regulators are put in place to protect people and deter criminals, but not all of them work. And this is not limited to crypto alone. There will constantly be regulation breaking projects in the space that financial backers need to stay away from.
This is obviously clear when we check FTX out. With a fully backed reserve, the exchange promised to keep customers’ funds safe. However, when Alameda Research, FTX’s sister company, released its balance sheet to the public, it was demonstrated that the two organizations had improperly utilized the funds of investors. Users of FTX tried to withdraw their funds as a result of this. In any case, in light of the fact that FTX didn’t completely back its stores, it couldn’t repay clients. FTX should have been prevented from engaging in this fraudulent activity by the regulations in place at the time, but they did not.
This catastrophe might not have happened if rating agencies had been put into place. Concerning connections between the platform and Alameda Research were discovered during research conducted nine months prior to the platform’s demise. However, this information was never distributed to the majority of FTX users and was not widely disseminated. Users would have been able to deposit their funds in safer exchanges if rating agencies had been in place. This information could have been made more readily available to the general public.
Rating agencies would protect businesses from illegal activity. They would be reliable, highly valuable sources of comprehensive information about the quality of various blockchain networks, presented in a variety of accessibility and detail levels. Additionally, they would reduce the media’s crude overgeneralization of cryptocurrency and the abundance of online misinformation. Investors could get the information they need from rating agencies to avoid bad companies.
The financial market is currently structured to benefit wealthy institutions. Ordinary citizens who do not meet a wealth or income threshold are prohibited from being “accredited investors” in the United States. This means that a typical person must go through a third party, like a bank or a brokerage firm, which typically charges fees for accessing the stock market. Retail investors have less control over the market and less access to it, and the money they make is frequently returned to other parties.
Why the market is set up in this way is debatable. Why are people allowed to gamble away their life savings in casinos or purchase state-issued lottery tickets with clearly losing odds if the goal is to prevent people from being sucked into money-losing deals? It almost seems as though the government has set out to prevent non-wealthy people from engaging in any kind of gambling where they actually have a chance to win and can use their insight and judgment.
This current configuration could be replicated in crypto without careful consideration. Policies like the income threshold for becoming an “accredited investor” that are already in place in the financial market may be imposed by traditional finance regulators. Under the guise of protecting individuals, these arbitrary policies may be implemented, but in reality, they may simply exclude retail investors from the cryptocurrency market.
More Binance Faces Customer Fear after FTX Crash
On the other hand, crypto-natives would set up crypto rating agencies with retail investors in mind. Rating agencies strive to provide investors with the best possible advice, which necessitates a thorough understanding of the industry. Additionally, rating agencies are merely guides rather than enforcers. Participants would still have access to their current freedoms, but with significantly more knowledge.
Controllers have knocked some people’s socks off to crypto, and obviously new arrangements will come very soon. However, upon arrival, they are likely to be out of date and ineffective. Implementing rating agencies that can ensure that bad players are highlighted and removed from the community is necessary if the crypto industry wishes to improve.
SingularityNET’s CEO and founder, Ben Goertzel also serves as the Artificial General Intelligence Society’s chairman. He has held the position of chief scientist at Hanson Robotics, where he co-developed Sophia, among other positions as a research scientist. He has also held positions as chairman of the OpenCog Foundation, chief scientist and chairman of AI software company Novamente LLC, and director of research at the Machine Intelligence Research Institute. He earned a PhD in mathematics from Temple University.
