The Need for Stronger Oversight
Crypto.com recently acquired an Australian broker license. This move signifies a shift toward addressing the regulatory gaps in crypto trading. Events like the FTX collapse exposed how exchanges operating with minimal oversight can lead to disastrous results. Billions in client funds were lost, revealing the risks of exchanges acting as custodians, market makers, and issuers without proper checks.
Why VASP Licenses Fall Short
A VASP license allows exchanges to claim they provide technology services, but it lacks critical safeguards, such as:
- Asset Segregation: No requirement to separate client assets from company funds.
- Market Integrity: No strict rules to prevent manipulation or misleading practices.
- Investor Protections: Few safeguards for retail investors in case of failure.
- Advertising Controls: Limited rules against deceptive marketing tactics.
- Crosschain Security: Current methods often rely on vulnerable bridges, exposing users to hacks.
Without proper regulations, exchanges can operate with limited accountability, leaving investors unprotected.
What Proper Infrastructure Looks Like
To build trust and ensure safety, exchanges need infrastructure comparable to traditional brokers. Here’s what that entails:
|
Feature |
Purpose |
|
Client Asset Segregation |
Protects user funds from misuse by the exchange. |
|
Real-Time Risk Management |
Prevents large losses during market volatility. |
|
Secure Crosschain Trading |
Eliminates reliance on risky third-party bridges. |
|
Compliance with Securities Laws |
Ensures fairness and transparency in trading. |
These systems aren’t glamorous, but they’re necessary to protect users and foster mainstream adoption.
The Path Forward
The solution is clear but demanding:
- Obtain Broker Licenses: Exchanges must secure proper licenses in every jurisdiction they operate.
- Build Better Systems: Develop or adopt infrastructure that supports secure trading and robust risk management.
- Commit to Compliance: Meet and exceed regulatory standards to protect users and markets.
While some exchanges claim blockchain technology makes traditional regulations obsolete, the billions lost to hacks and fraud suggest otherwise.
Progress is Happening
Crypto.com’s move to acquire a broker license marks a step in the right direction. Regulators are also cracking down on exchanges hiding behind weak VASP registrations. However, more work is needed.
The choice for crypto exchanges is simple: adapt to the standards of legitimate brokers or risk becoming irrelevant. Building the future of finance requires more than flashy tech. It demands real responsibility, proper licensing, and serious infrastructure.
The era of weak compliance and minimal oversight is over. The time for real change is now.
