Protect crypto investors’ trust: Goldman Sachs to regulators.

Even after the FTX collapse, Blockchain technology is not being questioned.
The pressing question is about the lack of regulations.
Lawmakers and regulators are yet to define rules for the crypto market, which opens it to deceits and bad players.

Although the FTX collapse is considered a ‘black swan event’ in the crypto industry, the financial market has seen many such events in its history. The collapse is not a question mark on the integrity of blockchain technology, but on the lack of regulations, especially around the “point of trust.” The point where money is exchanged provides the promise of future returns. The research report by Goldman Sachs noted on Friday.

The report notes that the crypto market follows a ‘well-trodden path.’

“A highly volatile and relatively new asset creates the potential for instant riches, drawing in many unsophisticated investors looking for the opportunity to make millions.”

The report said this new financial instrument is not heavily regulated, as the existing rules and regulators have yet to diagnose the potential loopholes. This could be a major reason the crypto market has seen such widespread deceits. It was much more than what the dot-com boom saw at the turn of the century, as it was under the umbrella of the highly regulated equity market.

Analysts Jeff Currie and Daniel Sharp shared that wherever money is involved in the promise of some returns in the future, it requires a point of trust. And this is why regulations are essential.

Investors must go through a doorkeeper, exchanges such as FTX, to access the market. Experimental investors are ready to give money to them with hopes of quick riches.

Despite recent mishaps in the industry, the leading investment bank still believes that cryptocurrencies are likely to shine. And the cornerstone for this shall be the lawmakers and regulators.

“Its the point of trust, not the trustless blockchain themselves.”

The bank added that the regulators would not have to interfere with the blockchains once the financial features of the digital assets were mended properly.

The opportunity for deceit in the crypto industry will linger unless the regulators can classify the tokens into specific categories. To explain this, Terra’s UST stable coin was lent out to Anchor for a yield of 20%, and it should have been regulated as a security.

The positive side is that the DeFi lending system does pose some advantages over traditional banks due to blockchain technology. The collateral in DeFi is visible to everybody in the pool, and the asset is automatically liquidized once the condition is reached.

The smart contracts used allow using the collateral without court interference. On this, the bank says,

“This resolves the question of trust, the very thing regulation to safeguard investors would be intended for.”