Crypto enthusiasts in the United States are currently facing a reckoning with securities laws, resulting in a growing demand for new, tailored regulatory frameworks specifically for cryptocurrencies. As it stands, regulation by enforcement, using an outdated framework from the 1940s, is the weapon of choice for Gary Gensler and his regulatory compatriots.
Cryptocurrency regulations currently circle around the Howey test, a four-pronged filter created in 1946 to hold companies accountable for offering investment opportunities to the public. This decades-old approach may not address the complexities of decentralized blockchain protocols and cryptocurrencies.
A five-step plan has been proposed to regulate crypto in a constructive and favorable manner. The first suggestion is to add ‘sufficiently decentralized’ to the regulatory dictionary, with unbiased computer scientists and software engineers working to determine a clear definition. This would help distinguish cryptocurrencies like BTC and ETH, which have been deemed commodities due to their decentralized status.
The second step calls for the creation of tools that genuinely protect investors, with regulators recruiting economists to establish a system that identifies when tokenomics become predatory. Centralization of token supply can make seemingly legitimate projects dangerous traps for inexperienced investors.
The third step involves allowing exchanges to list ‘securities’ without having to register explicitly. This would enable centralized exchanges like Coinbase to list tokens initially identified as securities, provided the token issuers display a plan for achieving decentralization.
Step four suggests diverting traditional finance fines to defend crypto investors, which could protect the digital asset industry while securing market rules. Lastly, the plan encourages bringing stablecoins and cryptocurrencies to stock exchanges, providing a clear licensing scheme and allowing regulated trading of digital assets.
Real, actionable regulation may spur untold growth in the digital asset industry currently unattainable with the unclear and outdated laws imposed today. By implementing these five steps, the crypto sector could navigate a more efficient regulatory environment while continuing to innovate and protect investors.
Source: Blockworks
