WEF Calls for Cooperation Between Regulators and Crypto Space
- The World Economic Forum, or WEF, published a whitepaper outlining the regulations for crypto assets via global cooperation.
- The organization collaborated with the Digital Currency Governance Consortium to publish the whitepaper on May 25.
- Global coordination between international entities, regulators, and crypto players will play a vital role in crypto regulation.
- The crypto industry “lacks a consensus on definitions, taxonomies, or even classification,” stated the WEF.
International agencies around the globe, like the International Monetary Fund (IMF) and the World Economic Forum, have been pushing for crypto regulation since the rapid surge in the adoption of these blockchain-based digital assets. The WEF recently published a white paper on the regulation of cryptocurrencies in cooperation with the Digital Currency Governance Consortium, an entity composed of more than 80 organizations representing numerous sectors and geographies. The white paper stated that regulation of the crypto sector is the need of the hour and that results cannot be achieved through cooperation.
The whitepaper stated that coordination on a global scale between international organizations, regulators, and crypto players will play a vital role in achieving positive results that would favor the development of technology as well.
The authors of the WEF whitepaper stated that there are numerous challenges that arise when the regulation of digital assets is discussed, including the presumption of “same activity, same regulation,” claiming:
“Crypto-assets and their ecosystem do not always fit squarely into the existing activity-based, intermediary-focused approach of regulation, even where crypto-asset activities mirror those of the traditional financial sector.”
The WEF authors noted that the crypto industry “lacks a consensus on definitions, taxonomies, or even classification,” while adding that these continue to evolve as the uses for the technology develop. Numerous regulators around the globe have “metaphorically spoken different languages” when it comes to the definition of digital assets, the whitepaper noted.
Moreover, the international organization noted that the anonymity provided by decentralized exchanges, crypto mixers like Tornado Cash, and self-hosted wallets also complicate the situation for the national regulators. The WEF also noted that there is a strong connection between the crypto industry and the traditional financial industry although the former is worth just a fraction of the latter.
This interconnectedness promotes huge risks in the traditional financial industry, which the WEF stated was recently seen in the form of the implosion of popular crypto exchange FTX under the leadership of Sam Bankman-Fried, also known as SBF in the crypto space.
Classifications of Regulations by the WEF
Moreover, for the sake of comparisons, the whitepaper created numerous classifications of regulatory frameworks, including outcome-based regulation, risk-based regulation, agile regulation, regulation by enforcement, and self- and co-regulation.
Outcome-based regulation includes the creation of basic rules for intended activities, followed by an outline of the results and performances expected. The WEF noted that while this method provides flexibility for businesses to achieve outcomes, it is “usually supported by guidance, industry standards, and other non-statutory approaches to providing clear direction.”
Risk-based regulation involves laying down principles as per the risk level of an activity, while agile regulation “adopts a responsive, iterative approach, acknowledging that policy and regulatory development is no longer limited to governments but is increasingly a multistakeholder effort.”
When it comes to self-regulation, the whitepaper stated that it depends on the coordination between industry representatives who collaborate to formulate voluntary standards or codes of conduct. “Such regulations may not be effectively enforced due to a lack of direct regulatory backing,” the WEF noted.
Finally, regulation by enforcement, which is the methodology followed by the United States Securities and Exchange Commission (SEC), uses enforcement actions for make rules.
“Enforcement actions are necessary to address issues relating to fraud and market manipulation, especially where crypto-assets blatantly resemble securities and are being used for explicitly prohibited activities such as money laundering,” read the whitepaper.
The WEF noted that the regulation by enforcement approach “is not recommended to build out a framework” as it “precludes any meaningful discussion of what should and should not be regulated.” As reported earlier by Bitnation, the SEC expanded its crypto unit and brought enforcement actions against multiple crypto firms like Kraken, Bittrex, Paxos, Coinbase, and many other leading firms.
A crypto journalist with over 3 years of experience in DeFi, NFT, metaverse, etc. Parth has worked with major media outlets in the crypto and finance world and has gained experience and expertise in crypto culture after surviving bear and bull markets over the years.
