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Cointelegraph: Crypto Industry Needs to Self-Regulate
A new opinion piece in Cointelegraph argues that the crypto space needs to adopt self-regulation to preserve its “autonomous, decentralized nature.”
The gist is that the industry should implement stricter, self-regulatory standards and measures to build a sustainable, innovative alternative system, or else government regulators will crack down even harder.
They’re not wrong. At Silvermint we believe in setting standards that are radically transparent and radically compliant. We believe that is what sets us apart from competitors.
While we don’t necessarily endorse any of the specifics proposed, we agree philosophically that a voluntary industry standard – absent government involvement – would be positive in building industry-wide public trust after the crypto winter.
Months after the collapse of the Terra ecosystem that propelled crypto’s market capitalization below $1 trillion, the industry is beginning the long process of rebuilding not only retail trust but also faith in itself. Current market conditions are in part due to structural weaknesses in smart contracts, models and governance processes. This is made evident by the many hacks and exploits that have taken place this year and the ballooning of projects with flawed tokenomics and that are governed through dubious operations.
The implementation of stricter self-regulatory standards will be necessary for the industry to build a sustainable, innovative alternative financial ecosystem. On the other hand, if the industry continues to ignore this problem, it’s certain that external regulators will step in hard, forcing the new system to become centralized in order to comply with legacy rules.
Self-regulation in various permutations has been successfully implemented in many industries with government oversight, resulting in more leniency in external regulation.
The advertising industry is a prime example with its implementation of self-initiated standards to protect the data privacy of users. As the internet industry grew in the 2000s, concerns began to emerge over users’ data being used by third parties without consent. The Federal Trade Commission, a United States government agency, proposed online privacy guidelines for the collection and use of users’ data for online behavioral advertising. In response, representatives of the ad industry developed a self-regulatory program based on the FTC’s recommendations. The program included “ad choices” to provide users with more control and autonomy over their data, with the option to opt out of personal targeting.
As a result of continual proactive efforts by the ad industry, they were able to avoid high external regulation and, instead, operate with oversight from the FTC. This relationship, where government and industry align, shows that innovation can be encouraged while also protecting consumer needs.
For the crypto industry to be taken seriously in self-regulation, it would require industrywide participation. A paper published in the American Political Science Review demonstrates that when there is high self-regulatory participation, intervention by pro-regulatory forces is significantly reduced. Meanwhile, pro-regulatory forces dominated 68% of cases where there was no self-regulation. Cases with high participation in the number of companies self-regulating with extensive self-regulatory practices saw pro-regulatory forces drop to 4%.
Great self-regulation can maintain the values of decentralized finance — such as being permissionless — while still protecting users.