On Sunday, Vitalik Buterin, the co-founder of Ethereum, offered his opinions on what regulations should be imposed on the cryptocurrency sector. By legitimising cryptocurrencies as an asset class, regulation may make them more appealing to traditional financial institutions. But new laws and regulations might also change the very nature of the sector, especially in relation to ideas like decentralisation and censorship resistance.
The crypto business shouldn’t, in his opinion, be “enthusiastically” pursuing massive institutional funding at top speed. He claimed that regulations that restrict how the crypto space can operate internally while making it more difficult for projects to get traction with the general public are considerably worse than those that don’t.
According to a recent Fidelity Investments study, regulatory ambiguity is considered as a barrier to institutional cryptocurrency investment. A lack of regulatory certainty, according to 16% of the more than 1,000 institutional investors surveyed for the Institutional Investor Digital Assets Study, is a barrier to investing in digital assets.
However, more than eight out of ten (81%) of the institutional investors polled believe that digital assets play a part in investment portfolios. In addition, a Bitcoin ETF piqued the interest of 43% of institutional investors.
Buterin said that he is “actually kinda happy a lot of the ETFs are getting delayed. The ecosystem needs time to mature before we get even more attention.”
Buterin separated the two types of legislative objectives he sees for the cryptocurrency market into improved consumer protection for those navigating the budding market and stopping the flow of illicit cryptocurrency, which he claimed is not limited to the DeFi space.
He seemed sceptical about mandating know-your-customer (KYC) standards for DeFi protocol front-ends. Financial organisations utilise such standards to combat money laundering, fraud, and corruption, but “hackers create custom code to connect with contracts,” getting beyond the typical KYC obstacles.
“It would annoy users but do nothing against hackers”
Buterin believes that certain DeFi restrictions, such as caps on how much leverage a user can use when trading, openness in code audits, and the requirement of “knowledge-based tests” rather than “plutocratic net-worth minimum norms,” could be more beneficial.
He further argued that regulations should be written to support the continued use of zero-knowledge proofs, a privacy-preserving cryptographic principle.