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Self-regulation is essential to manage the rapidly changing landscape of the cryptocurrency industry in order to maintain its autonomous and decentralized nature.
Months after the collapse of the Terra ecosystem that pushed the cryptocurrency market cap below $1 trillion, the industry is embarking on a long process of rebuilding not only trust in retailers, but in itself. . The current market situation is due in part to structural weaknesses in smart contracts, models, and governance processes. This is evidenced by the number of hacks and exploits that have occurred this year, as well as the surge in tokennomically flawed projects managed by questionable operations.
Stricter implementation of self-regulatory standards will be required for the industry to build a sustainable and innovative alternative financial ecosystem. On the other hand, if the industry continues to ignore the issue, there is no doubt that external regulators will be forced to actively intervene and centralize new systems to comply with traditional rules.
Self-regulation in various permutations has been successfully implemented in many industries under government oversight, resulting in more lenient external regulation.
The advertising industry is a prime example of implementing its own standards to protect user data privacy. As the Internet industry grew in the 2000s, concerns began to surface that users’ data could be used by third parties without their consent. The Federal Trade Commission, a US government agency, has proposed Online His Privacy Guidelines for collecting and using user data for online behavioral advertising. In response, advertising industry representatives have developed self-regulatory programs based on FTC recommendations. The program included an “advertising choice” that gave users greater control and autonomy over their data, with the option to opt out of personal targeting.
Related: Federal regulators prepare to issue verdict on Ethereum
As a result of continued aggressive efforts by the advertising industry, they have been able to avoid high external regulation and instead operate under the oversight of the FTC. This relationship between government and industry shows that innovation can be fostered while protecting consumer needs.
For the crypto industry to take self-regulation seriously, it needs industry-wide participation. Paper published in the American Political Science Review indicate when it is high Participation in self-regulation significantly reduces intervention by regulatory forces. During that time, the hardliners dominated 68% of cases. number self control. In cases involving large numbers of self-regulatory firms with extensive self-regulatory practices, his support for regulation dropped to 4%.
Good self-regulation protects users while preserving the value of decentralized finance, including permissionlessness.
One area where self-regulation is essential is DeFi privacy. Every individual has the right to privacy, not only about their money, but also about their information. However, private financial systems are known to be used by malicious actors, leading to actions such as sanctions against Tornado Cash.
An example of a self-regulatory privacy solution is opt-in whitelisting on private DeFi systems. A user can choose to opt-in to one of many possible whitelisted services when depositing and trading in Private DeFi. This is not personally identifiable, but it does indicate to whom the funds were previously whitelisted when transferring funds to a centralized exchange or selling an asset later. But it means you can check. The source of funds was not criminal. This whitelist provider could be a centralized exchange, a government agency, or an independent 3rd party that meets KYC requirements.
Users can choose not to be whitelisted or to be on the less trusted list, if desired. However, this makes it difficult to prove the origin of funds or to return to the traditional financial system.
Related: Biden is hiring 87,000 new IRS agents.
The crypto industry has matured significantly with each cycle, proving its resilience and evolutionary optimism. The industry is working together to improve privacy with zero-knowledge proofs, create cheaper and faster options for users via layer 2 solutions and alternative layer 1 blockchains, and prevent victims of hacks and failed projects. We are compensating users who have
For the industry to continue pushing its development roadmap without excessive regulation, it needs to gain autonomy. The tide may be starting to turn as more governments intervene, as seen with Tornado Cash sanctions and his proposed two-year ban on algorithmic stablecoins. Coordinating self-regulation can be difficult, but the big picture is to reaffirm trust in governing bodies that the industry is taking proactive steps to address its vulnerabilities. The door is open to the possibility of working with regulators to preserve the crypto identity that has attracted so many: financial autonomy and inclusivity.
Admittedly, these practices may seem similar to Web2’s practices of implementing certain centralized features. However, the application of these standards by those invested in the ethos of the industry could be the silver lining needed.
Self-regulation will be a key approach to managing the evolving landscape of the crypto industry. The range of possible innovations and, conversely, government regulation practices are reflected in the way the industry actively regulates itself. Real fundamental change and self-regulation are needed to usher in a new era of sustainable growth shaped by people who truly understand what the crypto industry wants and where it is going. must take precedence.
Will Harbourne Co-founder and CEO of Rhino.fi, Web3’s single gateway to a multi-chain, gas-free world. An early pioneer in the Ethereum ecosystem, Will joined Bitfinex in 2017 to lead its incubation and entered the cryptocurrency full-time when he launched Ethfinex Trustless. Ethfinex evolved into his DeversiFi in 2019 and in 2022 he rebranded to Rhino.fi. Prior to venturing into cryptocurrencies, Will was a technology consultant at Cambridge Consultants and at IBM.
This article is for general information purposes and is not intended, and should not be construed as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author and do not necessarily reflect or represent the views or opinions of Cointelegraph.
