FTX illustrated why banks need to adopt cryptocurrencies

FTX – the three letters that have been on everyone’s lips in the last few days. It was a shattering blow to those active in the crypto space as a tumultuous year for crypto draws to a close.

The impact is severe as over a million people and businesses owed money following the crypto exchange collapse. according to to bankruptcy filings. Given the ongoing investigations into the collapse, it will certainly spur regulatory changes, either by the legislature or by federal agencies.

While regulators may be relieved that the scandal did not happen under their oversight, it shows that regulators around the world simply haven’t taken enough action against crypto exchanges, many of which would welcome clear frameworks from those in power.

Related: Bankman-Fried misled regulators by distracting them from centralized funding

Some have argued that regulators are to blame for allowing or even encouraging FTX’s behavior, thereby creating many failures cryptocurrencies. It is fair to say that regulators are partly to blame for this tragedy and while they do not act to protect them from liability, their inaction equally tarnishes their reputation as they are portrayed as irresponsible for not doing more to protect consumers .

Ripple CEO Brad Garlinghouse tweeted on Nov. 10, “Singapore has a licensing framework, token taxonomy and more. They can regulate crypto appropriately because they have done the work to define what “good” looks like and know that all tokens are not securities… to protect consumers we need regulatory guidance for businesses that ensures trust and transparency. “

Cryptocurrencies are a unique asset class that continues to grow in importance. The longer the sector manages without defined regulation, the greater the potential for negative events and crises. Given the newness and international nature of crypto assets, it’s no surprise that regulators are faced with an unprecedented challenge that’s difficult to overcome.

However, the lack of regulatory action is a major factor that has contributed to Sam Bankman-Fried’s ability to manipulate and misuse assets for his own gain – without direct oversight any financial services firm (including banks) could be tempted to trick their clients into doing so increase their profits at the risk of losing all their money.

Related: Will SBF face consequences for mismanagement of FTX? Don’t count on it

Comparing the behavior of regulated and unregulated companies, a good example is German crypto bank Nuri, who told her 500,000 users to withdraw funds from their accounts before the company shuts down and liquidates its business. This is unlike unregulated entities like FTX and other crypto exchanges that simply froze their customers’ assets, making it impossible for them to recover their funds.

While it would be appropriate and sensible for any company that holds third party assets (e.g. centralized exchanges and lending platforms) to fall under the same level of scrutiny and regulation as banks, it could be even more beneficial for traditional banks to do so in the role of a “trusted third party” and offer crypto services directly to their customers. As a trusted intermediary, their centuries-old history grants them a level of trust and security that could help consumers onboard and use crypto services much more easily.

As the crypto world continues to await much-needed regulatory action, banks should take the lead and embrace the new digital asset as a way to mitigate the risks and losses affecting millions of crypto users today.

Yang Lan, CFA, is co-founder and chairman of Fiat24, the first Swiss bank built on blockchain. He holds a master’s degree in economics from Ludwig-Maximilians-University Munich and an MBA from IE Business School. As a former UBS banker, he has decades of banking experience.

The opinions expressed are solely those of the author and do not necessarily reflect the views of Cointelegraph. This article is for general informational purposes and should not be construed as legal or investment advice.

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