Extra Transparency Is Wanted within the Crypto Trade
proof of reserves for cryptocurrency exchanges that are open and transparent
A additional piece of evidence, if we needed any, that the cryptocurrency bull run has come to an end was provided by the high-profile crash of FTX. A crypto gold rush was generated as a result of the unusual events that occurred from 2019 to 2021. These events included the COVID-induced boom of retail investors into cryptocurrency. In this rush, adequate risk management and operational transparency were overlooked in favour of riding the wave of positive momentum. Reevaluating what constitutes good practise from crypto providers and looking into ways that they might rebuild the trust that they have lost over the course of the past year is something that has become necessary as a result of recent events.
There are an excessive number of cryptocurrency providers who are not in touch with the financial reality of what is reflected on their equilibrium sheets. It has been demonstrated to us through examples such as FTX and the FTT token that malicious actors possess the potential to generate value out of thin air. Additionally, it has been demonstrated that the distinction between physical cash and digital currencies was widely overestimated. There was almost little physical collateral in these organisations, and they were unable to fulfil requests from consumers to withdraw or transfer monies. The actual issue was that these companies lacked liquidity, which was the root of the problem.
We need to see a closer convergence between traditional finance and decentralised finance in order to ensure that the cryptocurrency business gets its house in order and for the industry to recover everyone’s trust. It is not sufficient for crypto providers to merely say that they have sufficient funds; they must be audited on a regular basis by a third party that has a good reputation, much like traditional financial services providers are audited. Cryptocurrency holders who have deposited funds with these providers are obligated to have an understanding of how these deposits are being held and whether or not they are being utilised in any other activity, such as lending or staking.
In contrast to self-government, regulation is preferable.
There has been regulation in traditional finance for hundreds of years; rather of assigning this task to providers of financial services, there are a variety of external institutions (such as the Financial Conduct Authority in the United Kingdom) that operate independently and frequently audit the industry as a whole. The same principle needs to be applied to cryptocurrency; far too frequently, we witness malicious actors make critical errors due to the fact that their decision-making has not been reviewed.
This is demonstrated by the failure of Terra Luna, Three Arrows, and FTX, amongst other companies, which is evidence that self-governance is ineffective. In the case of FTX, Sam Bankman-Fried is the only person who is held responsible for the irresponsible activities of a cryptocurrency exchange that is worth several billions of dollars. However, there was a group of stakeholders and advisors surrounding him who did not interfere or offer advice, despite the fact that they had a legally binding obligation to do so. A self-governance system necessitates accountability and participation from cryptocurrency providers; it is dependent on the internal pressure exerted by each cryptocurrency provider to maintain control over the whole industry. Rather than that, there ought to be an external pressure that checks on the overall health of the industry from the outside.
Instead of imposition of blanket restrictions that suffocate the cryptocurrency business, the most important thing is to solve the faults of the industry. We would like to see ‘good’ cryptocurrency providers working more closely with authorities to develop the rules, which would result in a better environment for everyone.
The Prospects for Cryptocurrency
For many years, we have been in need of a more favourable interaction between crypto suppliers and authorities. There is no such thing as the adversary, and regulation will not inhibit innovation in the cryptocurrency business. In point of fact, new regulations frequently serve as a fuel for people to innovate and construct within the newly established framework. Numerous cryptocurrency providers have responded to this problem by developing solutions that suit the requirements of both clients and authorities.
A greater level of openness should be the goal of the cryptocurrency sector. This includes the protection of funds, the identification and management of risk, and the establishment of appropriate protocols in the event that something goes wrong. As is the case with traditional finance, there is a significant possibility that we will witness additional high-profile collapses in the cryptocurrency industry in the future. However, if the appropriate regulation is in place and individuals in positions of authority are able to accurately evaluate the financial fundamentals of each cryptocurrency provider, then we will be in a much better position to anticipate and, consequently, mitigate this risk.
