Leading crypto firms like Coinbase (NASDAQ: COIN) and Ripple have proposed a regulatory framework for virtual currency and digital asset regulation.
In general, their recommended approach is meant to provide an effective and practical way forward for the blockchain industry. Crypto professionals believe that we need a relevant set of regulatory guidelines for accommodating the innovative capabilities of digital assets. Industry participants also believe the ideal public policy outcomes may be attained by stronger collaboration and work relationships between the public and private sector. A comprehensive approach to crypto and DeFi regulations should be able to adapt the current regulatory frameworks while supporting crypto innovation sandboxes.
Experts Say SEC’s Regulation-by-Enforcement Approach Just Won’t Work
Crypto industry professionals have also emphasized the importance of clear blockchain and crypto ecosystem guidelines and appropriate licensing frameworks. Overall, crypto organizations believe we need legal clarity for digital asset markets. According to industry experts, the US SEC’s regulation-by-enforcement approach just won’t work for this nascent sector being built on highly-technical decentralized protocols.
Policymakers in the US, Europe, and other jurisdictions are interested in learning more about how these cryptocurrency protocols have been developed and the use-cases they plan to provide in the coming years.
Industry experts have also noted that US financial regulators must play a key role in supporting the establishment of a “safe harbor” environment through which application and protocol developers are permitted to deploy their solutions and create their networks for a certain time period without being required to adhere to outdated federal securities laws, but only if certain conditions are satisfied beforehand. For example, innovation sandboxes are an effective way to promote public-private collaboration in the digital assets space.
A Better Way to Engage with US SEC, Other Global Regulators
There are many innovative projects like the Astra Protocol, a decentralized compliance layer for DeFi, that could help crypto firms ensure regulatory compliance. This approach could also lead to more productive dialogue and meaningful interactions with the US Securities and Exchange Commission (SEC).
Gary Gensler, the Chairperson of SEC, has referred to Crypto as the “Wild, Wild West.” He has also called for improved consumer protection in the digital assets sector. US lawmakers and regulatory authorities across the globe have recommended creating appropriate regulations for the crypto space.
As noted by the Astra Protocol team, major money laundering cases across different DeFi platforms have forced regulators to pay close attention to this nascent industry.
According to Astra, an innovative, highly secure, decentralized compliance platform is needed to deal with the growing concerns of loosely regulated crypto platforms. The Astra team also recommends a strategy where industry participants can adapt to the ever-evolving criminal activity in the crypto-assets space.
Importantly, the platform needs to provide a way to cope with the fast-evolving regulatory landscape, as laws like the “Cryptocurrency Bill 2021” and the “Keep Innovation in America Act” are made effective.
Under the Bank Secrecy Act, any so-called decentralized service provider that’s trading regulated financial assets has to carry out KYC and ensure adequate AML compliance processes are being followed.
Astra Protocol developers further explained that one of these requirements is “Independent testing for compliance to be conducted by the futures commission merchant or introducing broker in commodities’ personnel or by a qualified outside party.”
Astra Protocol developers are focused on addressing these requirements for all DeFi platforms. The team explains that the “Travel Rule” is one of the best ways to prevent money laundering and terrorist financing activities.
Weak KYC Remains Critical Issue
Virtual-asset firms and DeFi platforms have different ways to carry out customer due diligence, KYC, and AML/CFT processes, the Astra Protocol team notes. However, there are many platforms available to US consumers that have no proper KYC processes.
Astra Protocol developers further reveal that weak KYC remains a critical issue as would-be criminals are able to bypass these barriers. Investors are at considerable risk from DeFi hacks, scams, and theft as long as they engage with these platforms without a robust approach to KYC and AML.
Astra further notes that as DeFi continues to expand and grow as an industry, it will have to follow rules specified by society. That’s why these DeFi protocols will have to invest in a reliable compliance layer. Otherwise, regulatory agencies will be penalizing those who are violating money laundering / terrorist financing guidelines, as the SEC has stated.
Astra’s primary goal is to equip all DeFi protocols and Virtual Asset Service Providers (VASPs) with a decentralized compliance layer. Their offerings include KYC & AML capabilities to serve as a tool to address compliance issues by leveraging the expertise of trusted legal organizations.
Astra has specifically been designed to bridge the gap between regulators and innovators. The Protocol’s service offering aims to facilitate the best quality KYC and other due diligence processes via existing frameworks from well-established legal firms. Their platform offers decentralized business organizations and VASPs a proper mechanism to follow relevant regulations implemented by various jurisdictions.
For novice or new DeFi users, their technology calls upon industry experts from legal and accounting companies to conduct thorough KYC processes.
Astra Protocol developers offer a secure service to customers that’s tailored to any jurisdiction’s specific needs. Additionally, they provide customers a breakdown of various risks for any DeFi user based on globally recognized money laundering / anti-terrorism financing rules. With Astra, decentralized platforms may effectively demonstrate that they’re aware of and properly reacting to serious dangers while preventing fraudulent transactions.