SBF talks about supervision: how to classify stablecoins, the issue of SEC supervision of spot goods, and the impact of a clear regulatory framework on the industry

After cryptocurrency has entered the mainstream, the U.S. Department of the Treasury, SEC, CFTC, and regulatory agencies in various countries want to bring cryptocurrency into regulation. This article will sort out recent regulatory trends and focus on the creation of FTX People SBF's views on regulation, let readers understand the current trend of regulation.

FTX founder Sam Bankman-Fried (SBF) was a guest last week on the well-known Blockchain Podcast "UNCHAINED". SBF talked about many regulatory issues in the Podcast, including the regulation of Stablecoins, the risk management and control of algorithmic Stablecoins and encrypted lending platforms, and the impact of a clear regulatory framework on the industry.

For many crypto proponents, the best regulation is no regulation, but after The thunderstorms of TerraUSD, LUNA, and Sanjian Capital, from the standpoint of investor protection, officials have to consider the financial risks brought by cryptocurrencies.

SBF said that in the past six to nine months, supervision has begun to proceed from various aspects, Including Stablecoin regulation, whether Token is a security, SEC and CFTC's regulatory power, CFTC's futures regulation, etc.

He further analyzed that a global trading platform like FTX will need to expand in many countries Business, which can be achieved through local regulated companies to expand business in compliance. But this is just "compliance operation".

The real question is: Where is the direction of supervision?

SBF said that in terms of trading platforms, the core business involves trading platforms, clearing houses ( clearing house), matching engine, and transaction front-end, these businesses are all separated in the traditional financial market, so it is necessary to sort out which licenses to apply for when operating a trading platform.

In addition, the regulatory agency has not yet defined whether Token is classified as a security. These are the reasons why crypto startups are struggling to move forward.

SBF believes that current Congressional members will prioritize consumer protection and industry regulation:< /p>

“I think the three pillars of regulation are Stablecoin regulation, market regulation, and Token registration. Among them, Stablecoin regulation is the most frequently mentioned by legislators. Market regulation focuses on which institution regulates and how to legislate. The focus of Token registration is mainly on the determination of the regulator (whether it is a security).”

It's like waiting for a new regime and a new system, a bit ambiguous.

Is Token a security?

A while ago, the two major U.S. regulators, the SEC and the CFTC, were arguing over the regulatory rights of cryptocurrency spot. The main point of disagreement is: Is Token a security?

The SEC's position is to use existing securities exchange laws to regulate cryptocurrencies. In other words, if a cryptocurrency operates and makes profits in a similar way to traditional securities, it will be classified as a security.

In addition, in the Howey Test standard, Token is likely to be regarded as a security, because these Tokens may be classified as "investment In the "contract", as long as the purchase of Token meets: 1.) investor contribution, 2.) contribution to the same entity, 3.) reasonable expectation of profit, 4.) profit comes from the efforts of a certain entity.

SBF Summarizes SEC Chairman's Support for "Congress Gives CFTC More Regulatory Powers for Non-Securities Cryptocurrencies" statement. He believes that the SEC's position is:

1. CFTC will regulate the "non-security" cryptocurrency Spot + futures market

2. The SEC regulates encrypted spot + manages the issuance of security tokens.

But this creates several problems, including

1. Who should supervise the futures and derivatives of securities tokens?

2. Who supervises the stock token?

3. Are Stablecoins securities?

But he thinks these discussions are valuable. Regulatory resolutions produced along these lines of thought will be beneficial to investor protection, risk prevention, and fraudulent incidents.

My opinion on SBF’s Stablecoin

Stablecoin is also another major regulatory focus. Different from the other two directions, it is the two major monetary regulators in the United States that have recently called for the regulation of Stablecoin: the Federal Reserve and the Treasury Department.

Federal Reserve Vice Chairman Lael Brainard said at a bank meeting in September that Stablecoin is due to the structural relationship , It is easy for risks to penetrate into the core financial system.

SBF believes that although they all need Stablecoin, they are essentially different, so he divides Stablecoin into Four categories:

1. 100% Reserved Stablecoins: 100% backed by USD, US short Stablecoins with debt reserves, such as USDC and USDP;

2. Stablecoins similar to debt instruments: also 100% reserves, most of which are US dollars and government bonds, and a small part are corporate bonds, such as USDT ;

3. Stablecoin like MakerDAO: Excess reserves from cryptocurrencies such as ETH or Stablecoin reserves;

4. Algorithm Stablecoin like TerraUSD: high-risk and flawed algorithm Stablecoin .

He said that Stablecoins must be distinguished first in order to be effectively supervised.

The first is the most secure Stablecoin, theoretically even in the face of a liquidation crisis, the price There will be no fluctuations either. Tether's USDT is essentially a "debt instrument", and part of the investment portfolio (reserve) contains corporate bonds, so during periods of turmoil, there may be a 2% price drop (1 USD 0.98 USD).

The third risk will be relatively high, although there is over-collateralization, but in extreme cases, There may be a 20% price drop. He believes that although such a Stablecoin is feasible, it is usually not what the public expects from a Stablecoin, and a product disclaimer is required.

The last one should not be classified as a stablecoin at all.

“I mean, this (TerraUSD) is a cool concept, but its The stakes are fucking high..., I wouldn't consider it a stablecoin, so if you're going to launch TerraUSD, it shouldn't be packaged as a stablecoin. At least something like TerraUSD should have very, very many disclaimers statement, and maintain the highest standards in terms of customer understanding of the product.”

Although TerraUSD is called Stablecoin, and With a mechanism similar to MakerDAO, the public thinks that TerraUSD is very stable, but in fact, the linked destruction mechanism of TerraUSD and LUNA will cause a large increase in the supply of LUNA when a large amount of TerraUSD is sold off. Once the supply of LUNA increases and the price falls, it will cause More TerraUSD sell-offs, equivalent to a simultaneous decrease in the market demand for TerraUSD + LUNA, forming a death spiral.

A clear regulatory framework is beneficial to the encryption industry

Now the overall economy is the biggest variable in the encryption market, but compared to the stock market, the encryption market is relatively stable at present. SBF believes that if we assume that the economy is stable, then Regulations will be biggest shock to crypto markets:

“Relative to what’s happening in the stock market, I think the crypto market is relatively stable. If the regulatory framework in the future is clearer, especially in the US regulators, so that the industry can operate according to the rules, while achieving consumer protection, which has been the biggest bullish for many years, I think we may It’s close (clarity to the regulatory framework).”

This is the same view as CFTC Chairman Rostin Behnam . Rostin Behnam said at New York University at the end of last month that as long as regulators can give clear specifications, cryptocurrencies can grow normally according to market imagination, and the price of Bitcoin may double.

Regulation increases investor protection

For CeFi innovations such as Sanjian Capital and Celsuis, SBF believes that more transparent lending mechanisms should be introduced to help users understand the risks they take.

Three Arrows Capital was originally the largest hedge fund in the currency circle. It filed for bankruptcy in July. It is rumored that it is because of the liquidity problem caused by holding too much LUNA; but what is worse is that due to the loan relationship between Sanjian Capital and other lending platforms, a series of liquidations have been caused.

SBF thinks this is a bit similar to the 2008 financial turmoil. It is too opaque, causing the operation of a group of people to affect the entire encryption market, and finally affect the users of the lending platform.

“More transparency about lending and borrowing may solve some of the , The risks they need to take when investing funds in lending platforms like Voyager. I think that information disclosure and transparency can allow regulators to investigate more of this type of CeFi.”

Regulations should be simple and complex

SBF believes that everyone's discussion on regulation now mainly focuses on the extent of regulation. He believes that the real focus is to narrow down the scope of complex regulatory General direction.

He gave an example, if the supervisory authority pays attention to consumer protection, it should focus on Where there are risks, various laws and regulations should also be based on consumer protection, rather than adding more regulatory rules, which will overwhelm the industry. In addition to increasing regulatory difficulties, there is no way to get the consumer protection it deserves.

In the case of Stablecoin, SBF wants regulators to really dig into the USD/ National debt, making the balance sheet as transparent as possible. If the issuer makes a mistake, it must be corrected in time and a huge fine should be imposed, instead of introducing a third party that is not helpful for supervision, which will hinder the operation of the Stablecoin issuer and make it more difficult to protect investors.

“Not all of the Industrial regulations can protect users, some will only increase troubles, and some are beneficial to investor protection. How to protect users while making regulations simpler and easier to comply with is my core concept of regulation. "

欢迎加入律动 BlockBeats 官方社群：

Telegram 订阅群：https://t.me/theblockbeats

Telegram 交流群：https://t.me/BlockBeats_App

Twitter 官方账号：https://twitter.com/BlockBeatsAsia