The World Economic Forum (WEF) has proposed a series of solutions to address the disparities in global crypto policies, intending to better protect markets and investors. In a recent white paper, “Pathways to the Regulation of Crypto-Assets,” the WEF highlights the limitations traditional financial protections might face when implementing decentralization.
Crypto assets currently constitute a relatively small portion of the global financial system. Nevertheless, the WEF argues that the lack of regulation in some regions and the absence of a harmonized regulatory framework could threaten worldwide financial stability.
The WEF’s recommendations target three key stakeholder categories: international organizations, regional or national regulators, and the industry itself. Some of the suggestions include establishing best practices for crypto, harmonizing terminology and definitions, fostering cross-sector coordination among regulators, and innovating responsibly while engaging with policymakers.
A lack of standardization in crypto regulations, policies, and definitions is an obstacle for achieving comprehensive oversight. In some jurisdictions, such as Singapore and Hong Kong, a light-touch approach to regulation results in problems of regulatory arbitrage.
Contributing to the white paper, Dante Disparte, Chief Strategy Officer and Head of Global Policy at Circle, referred to the WEF’s collaborative efforts with the Digital Currency Consortium as “vital work” offering a blueprint for jurisdictions.
The WEF report also sheds light on areas of potential concentration risk, such as stablecoin issuers dominating the market and widespread contagion within crypto exchanges. Clear regulatory frameworks would help address market abuses, competition policies, and conflicts of interest.
Additionally, the WEF identifies Ethereum‘s dominance as a potential risk, stating that although several decentralized applications power the ecosystem, Ethereum dominates the underlying technology. However, as more layer-1 protocols enter the market, many of which depend on Ethereum technology, and layer-2 networks such as Optimism, Arbitrum, and Polygon address concentration risks, the potential risk might be mitigated.
In line with the WEF’s insights, global agencies such as Dubai’s Financial Services Authority have urged collaboration between regulators to close exploitable regulatory gaps. The complex nature of multi-jurisdictional operations within global crypto firms means that a well-coordinated approach is necessary to advance policy and regulatory progress within the sector.