The prevailing narrative for the past several years around blockchain and digital assets has been that regulatory risk is the biggest threat to the industry, but that’s false.
If the past two years have taught us anything, it’s that regulators will work at their own pace to sort rules and regulations; and we must continue to educate and lobby about Web3 technology on a global front. However, as an industry we also need to address the elephant in the room: founder risk, and not accept this as par for the crypto course.
This op-ed is part of CoinDesk’s State of Crypto Week sponsored by Chainalysis. Margaret Rosenfeld is the chief legal officer at Cube Group and former lawyer at Deltec International Group.
In what seems like the blink of an eye, the leading lights of our industry have gone from starlets to snake oil salesman — the list of implosions reads like a who’s who of whom mattered only two years ago — FTX, Voyager and looking farther back Mt. Gox and Quadriga, the list goes on seemingly forever; but how did these platforms fail, and how were they able to take billions of dollars in client capital down with them?
Are regulators to blame?
Our industry pounds the drum about the lack of clear regulation when enforcement regulators come after projects. And I agree that about 90% of the time this drumbeat is true. But exchange founders that lost or misused client assets in their custody can’t really claim a lack of regulatory clarity as a defense.
There is a single aspect of digital asset and Web3 market structure that differs from traditional markets, and this difference is what has led to most of the pain in our industry — no industry standards around asset custody.
Anyone who understands basic finance knows a simple truth: assets should be segregated from where they are traded. The platform where you trade should not also be where your assets are held. This is a clear conflict of interest that, until remedied, will lead to continued asset vaporization.
Really?
Most of the prominent people in crypto built their bonafides claiming they have traditional markets experience. From Sam Bankman-Fried’s time at Jane Street to Voyager CEO Steve Ehrlich’s time at ETrade, people tend to tout their Wall Street bone fides.
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