Stablecoins Are ‘Lowest-hanging Fruit’ for Crypto Regulation

Crypto regulators should focus on stablecoins, FTX founder Sam-Bankman Fried said, adding that agencies should first look to address “the lowest-hanging fruit” within the segment to reduce risks.

Speaking in Washington, DC Wednesday at an event hosted by the Bipartisan Policy Center, Bankman-Fried said the crypto space has grown to the point that regulatory oversight is needed and healthy. 

The “cleanest example,” he noted, of necessary regulation is ensuring that there are as many dollars backing the number of stablecoins in circulation. 

“Right now, the regulatory oversight of [stablecoins] is extremely unclear, it’s extremely messy and there are a lot of cooks hovering around the kitchen, but there’s no head chef,” the crypto executive said. “There basically isn’t any core regulator who clearly has the duty to ensure that, and there should be.”

The crash of algorithmic stablecoin TerraUSD (UST) earlier this year in part caused crypto prices to nosedive and sparked a wave of insolvencies in the space.

The President’s Working Group on Financial Markets recommended steps for Congress and regulators to make stablecoins safer last year. A recent report published by the Financial Stability Oversight Council (FSOC) states that passing legislation to regulate stablecoins is among 10 steps to lessen the risk cryptoassets purportedly pose.

A crypto framework published by the White House last month added that the US would continue research around whether to launch a central bank digital currency (CBDC) — a digital form of the dollar that Federal Reserve Chair Jerome Powell said earlier this year could coexist with privately issued stablecoins.

“CBDC development is a red herring,” Georgia Quinn, general counsel at Anchorage Digital, told Blockworks.

“What the industry really needs instead is clear, consistent stablecoin regulation to bolster and upgrade the US dollar for the digital age,” she said.

Rather than striving for perfection right now in a space that is hard to predict, regulators should start by “putting one foot in front of the other” when considering regulation in the space, Bankman-Fried said Wednesday.

“When you start to get into DeFi, there’s a lot of very interesting policy questions which I don’t think there’s a consensus on…and we will have to get to that eventually,” he added. “But let’s not nerd-snipe ourselves with that too much at the beginning.”     

Blockchain not fait accompli

Bankman-Fried spent a portion of the discussion sharing the big picture for crypto, noting one of the biggest advantages is having a real-time transaction settlement system without relying on intermediaries that could add risk.   

Bipartisan Policy Center founder Jason Grumet, who moderated the talk, countered the advantages with the “nefarious uses” of crypto, alluding to recent hacks in the space. Bankman-Fried acknowledged the complicated narrative of transparency versus privacy when addressing cases of illicit finance.

“I’m optimistic about blockchain for [access and inclusion]; I don’t think it’s fait accompli,” he said. “I think we could still screw it up and end up with all the exclusion that we found in traditional finance if we’re not careful.”

While blacklisting addresses associated with blockchain-related financial crimes is important, Bankman-Fried added, requiring a whitelisted system where people can only access digital finance if they are approved would be moving away from the technology’s founding principles.  

“Starting with the presumption of freedom and then restricting in the case of bad activity, I think is super healthy,” he said. “Start with the presumption that you can only do anything if it gets an explicit thumbs up, and all the marginalized groups are going to be marginalized once again.”

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