Ethereum founder and leading developer Vitalik Buterin has voiced out his concerns about the crypto industry’s current state and how, in his opinion, it should not be pursuing preferential positions with institutional capital as it currently is.
According to Buterin, the ways in which crypto firms and projects pursue compliance to regulatory environments that benefit their own objectives may lead to the industry succumbing to the pitfalls of centralization.
At its core, crypto and blockchain technologies were designed to be resistant to centralized control, censorship, and state authority. This is one of the reasons why crypto’s beginnings can be traced to the cypherpunk movement from the late 1980s, in which privacy and security formed the cornerstones of a counterculture. Regulation, as it were, appears to render the crypto industry more acceptable in terms of how financial institutions see crypto firms as legitimate entities, with cryptocurrencies themselves as an equally legitimate asset class.
Buterin claims that crypto firms shouldn’t be “pursuing large institutional capital at full speed,” adding that he’s actually “happy” with regards to the delays for ETFs (Exchange-Traded Funds) based on crypto such as ETH or BTC. Buterin says that crypto’s overall ecosystem “needs time to mature before we get even more attention.”
“Basically, especially at this time, regulation that leaves the crypto space free to act internally but makes it harder for crypto projects to reach the mainstream is much less bad than regulation that intrudes on how crypto works internally,” Buterin shares through a Twitter thread.
Buterin’s commentaries were made shortly after joining Coinbase’s Brian Armstrong in a podcast discussing related matters. Buterin’s statements can also be seen as a tangential response to Sam Bankman-Fried’s own stand in terms of FTX’s regulatory vision. Bankman-Fried was criticized for his positions about regulatory sanctions related to decentralized finance, some of which required autonomous outfits to comply with U.S.-based rules. This also included the status of crypto websites being required to register as “broker-dealers,” even while not all crypto applications or protocols operate in the exact same manner as broker-dealers.
According to research from the Institutional Investor Digital Assets Study (a Fidelity Investments initiative), roughly 16% of institutional investors do not have any clarity in terms of regulatory frameworks that apply to digital assets. For this study, over a thousand institutional investors were surveyed, representing a sizable number of participants. Of these participants, 81% agreed that they perceive digital assets as important components of investment portfolios, while about 43% of the participants expressed interest over the prospect of a fully available Bitcoin ETF.
To Buterin’s mind, the protection of consumer interests is important, and this should be paired with the goal of keeping the crypto industry a safe environment, especially for those who might just be starting out. Buterin has highlighted the requirement of KYC or Know-Your-Customer policies towards decentralized finance protocols’ end-user interfaces. These same policies are implemented by financial institutions, especially in cases of AML (anti-money laundering) and fraud.
The “KYC on defi frontends” idea does not seem very pointful to me: it would annoy users but do nothing against hackers. Hackers write custom code to interact with contracts already. Exchanges are clearly a much more sensible place to do the KYC, and that’s happening already.
— vitalik.eth (@VitalikButerin) October 30, 2022
Buterin is of the position that there are other regulatory implementations that could be helpful, particularly for decentralized finance: this includes limits on the leverage level that a user can trade through, code audit regulations, and the requirement of “knowledge-based tests”. The Ethereum co-founder has also expressed his full support for regulation that would harness the strengths of zero-knowledge proofs that would help preserve privacy across the crypto ecosystem.