FTX Crypto Regulations: Here’s What You NEED To Know!!

FTX is known for being one of the most Influential companies in cryptocurrency This is due in large part to founder and CEO Sam bankman freed who has lots of Friends on Wall Street and in Washington DC That’s why Sam’s recent crypto Regulation recommendations were taken so Seriously Sam and FTX have the power to Influence actual crypto policy and not Everyone is a fan of what they’re Recommending so today I’m going to Summarize Sam’s recent crypto regulation Recommendations analyze each one and Tell you what effects they could have on Crypto if they become law The post detailing Sam’s crypto Regulation recommendations can be found On the FTX policy website It’s titled quote possible digital asset Industry standards and I’ll leave a link To the full post in the description if You’re interested Now I’ll start by highlighting something That’s mentioned in the very first Paragraph of the post That’s that what Sam is proposing is Intended to be a draft that’s meant to Stimulate discussion about possible Crypto regulations I mean it’s literally In the title In other words what Sam is suggesting is Not the be-all and end-all of what Crypto regulations in the United States

And elsewhere will be To be clear Sam and FTX do in fact have Significant influence over crypto policy But they are by no means the only Entities with this kind of influence It’s also worth pointing out that this Isn’t exactly the first time that Sam And FTX have put out crypto regulation Recommendations Sam and FTX also aren’t the only Entities that have been making these Sorts of recommendations binance and Coinbase basically did the same earlier This year If you’re wondering which other entities In crypto are influencing crypto Regulations you can watch our video About crypto lobbying that will be in The description I digress So the first set of recommendations Relates to sanctions allow lists and Block lists these recommendations seem To be the ones that generated the most Backlash Now that’s because Sam is in favor of Block lists I.E blocking certain wallet Addresses from interacting with the rest Of the crypto ecosystem In theory this is a good idea but in Practice it ain’t In theory block lists would be used to Rightfully restrict Bad actors in Cryptocurrency in practice however block Lists would be used to restrict anyone

Who opposes the entity that’s in charge Of determining which wallet addresses Are blocked now in this case Sam Believes that the office of foreign Assets control or ofac should be the Entity that oversees the crypto block List this is a problem because ofag is Part of the US government specifically The US Department of the treasury it’s Safe to say that could get ugly very Quickly To Sam’s credit he does note that the Task of maintaining this list could be Given to a quote responsible actor Unfortunately that opens another can of Worms as it would be arguably impossible To agree which entity should have the Power to block people from the crypto Ecosystem There’s also the issue of dusting which Is when a sanctioned wallet address Sends crypto to other wallet addresses That haven’t engaged in any illicit Activity this became an issue after ofac Sanctioned tornado cash and it’s an Issue that Sam also acknowledges in his Post In addition to a block list Sam also Suggests creating a standardized Database of crypto wallet addresses Suspected of being associated with Illicit activity these would be shared With other centralized entities in Cryptocurrency

Note that these wallets would not be Blocked just very closely watched yikes As a cherry on top Sam seems to suggest That block lists should be enforced on Chain This means that crypto wallets would Automatically be frozen the moment that Ofac or whichever other entity is doing The overseeing determines they’ve done Something sufficiently naughty This is something that was picked up by Unbanked podcast host Ryan Sean Adams Who blasted Sam for suggesting that the Freezing of crypto on chain should be Normalized he also criticized Sam for Suggesting defy applications must comply With block lists it looks like Sam has Since removed that suggestion The second set of Sam’s recommendations Relates to crypto hacks and Accountability I.E who is responsible When a crypto protocol or project is Hacked Sam again suggests creating a List of crypto wallets that are Associated with these hacks so that they Can be blocked by centralized and Decentralized services regarding the Retrieval of funds from a hack Sam notes That there are often negotiations Between the hacker and the affected Crypto protocol or platform Sam also points out that it’s not always Clear whether the hacker did anything Legally wrong nor how much money they

Ought to return for context a lot of the Big hacks in crypto have actually been Flash loans now if you’ve watched any of Our videos about Ave you’ll know that a Flash loan involves borrowing a large Amount of crypto to execute an Arbitrage Trade buy a token for a low price in one Protocol and sell it at a higher price In another instantly Depending on the quality of the protocol A flash loan can be extremely damaging Some have resulted in millions of Dollars in losses and the cause is Almost always an issue related to the Oracle the protocol is using to keep Track of crypto prices is this kind of Arbitrage legal well apparently not in Canada Now what Sam proposes is an admittedly Complex formula of how the hacker should Be compensated the short explanation is That the users of the crypto protocol or Platform that was hacked should be made Whole I.E have their crypto returned Assuming the hacker didn’t do anything That was clearly illegal and was Cooperating with the affected protocol Or platform to return the funds then he Or she would get five percent of the Assets they took as a de facto bug Bounty for discovering the exploit in The code Besides being cooperative the hacker Must also return the funds within 24

Hours if the hacker tries to take his or Her time returning the stolen crypto or Tries to keep more than five percent of What was taken then it’s No More Mr Nice Guy The Hacker will be deemed a bad Actor and authorities would get involved Now Sam’s reasoning here is that this So-called 5-5 standard would have Reduced the severity of previous crypto Hacks by 98 he emphasizes that he’s open To suggestions on this front given that Crypto hacks aren’t always clear-cut and The right course of action is likewise Often unclear now call me crazy but in The absence of any other legal Clarity I Tend to lean more towards the idea that Code is law If a crypto project protocol or program Is hacked because of a bug in the code Then it’s the developers that should be Held accountable especially if it’s a Bug that they were already aware of There have been cases like this Again though these situations are not Always clear-cut and there is something To be said about what hackers do with Funds that are stolen remember that many Of the Cross Chain Bridge hacks we’ve Seen since the start of the year were Perpetrated by North Korea I think we Can all agree that is very very bad Now the third set of recommendations Relates to the classification of Cryptocurrencies as Securities or

Commodities for reference Securities are Assets like a stock in a company and are Heavily regulated by contrast Commodities are assets like oil and are Not subject to extensive regulations Since the 2017 crypto bull market there Has been lots of debate about which Cryptos are securities and which ones Are Commodities so far only bitcoin’s BTC has been concretely classified as a Commodity Comments by a former SEC official Suggest that ethereum’s eth is also a Commodity but that is not official as We’ve seen any cryptocurrency that’s Classified as a security gets delisted From crypto exchanges in the United States and is made inaccessible to American investors given that most Crypto investors are in the United States a Securities designation is a Devastating blow to any coin or token Now as far as Sam is concerned it’s up To policy makers to decide which bucket Each crypto falls into in the interim Ftx’s us arm will have its legal team Assess coins and tokens to determine Whether they satisfy the criteria of the Howie test For those unfamiliar the Howie test Consists of four criteria which must be Met for an asset to be classified as a Security in the case of cryptocurrency The most important Criterion is the

Fourth the expectation of profit from Buying that coin or token is coming from An identifiable third party Sam notes that ftxus will de-list any Cryptocurrencies that meet all four Criteria of the Harry test which is Really just the fourth Criterion Any crypto that does not meet that Fourth Criterion will be treated as Commodities by FTX US unless the SEC Comes out and says otherwise This is a bit annoying because the SEC Hasn’t exactly been using the Howie test To determine which cryptos are Securities if you’ve watched any of our Recent videos about the infamous Regulator you’ll know that it really Does just seem to be picking and Choosing which crypto projects to go After more importantly SEC chairman Gary Gensler believes that centralized stable Coins are securities now this makes zero Sense since there’s no expectation of Profit to be had for an asset that Maintains a stable value This begs the question of what FTX would Do if circles usdc is determined to be a Security in any case Sam reveals at the End of this section that he and FTX are Working closely with Regulators to Establish a framework for Cryptocurrencies that count as Securities Something tells me that these Frameworks

Will be kind to the coins and tokens FTX Has invested in but that’s just my Speculation The fourth set of recommendations Relates to tokenized equities that is Tokenized stocks some of you may know That some crypto exchanges started Offering tokenized stocks last year some Of you may also know that exchanges got In a lot of trouble for doing that Particularly binance This is unfortunate because tokenized Stocks are the ideal way to access these Assets this is something that Sam is Hyper aware of which is why he is Advocating for replacing the half dozen Middlemen involved in every stock trade With transparent decentralized Blockchains that offer near instant Settlement This fourth set of recommendations is Interesting because FTX is heavily Invested in Solana those of you who are Familiar with Solana will know that the Project’s end game is to become an Alternative to centralized stock Exchanges like the NASDAQ This is why it’s odd that Sam told what Bitcoin did podcast host Peter McCormack That these recommendations are not What’s best for FTX but rather what’s Best for the industry from where I’m Standing FTX clearly stands to benefit From some of these recommendations if

They are implemented Regardless Sam’s focus on tokenized Stocks can therefore be taken as a Bullish sign for Solana from what I’ve Seen Sam and FTX have been pushing for Tokenized stocks for months if not Longer if they succeed in getting some Regulation passed Seoul could seriously Benefit that is if Solana can stay Online of course more about Solana in The description and yes I hold Seoul as Part of my personal portfolio not Financial advice you know the drill now The fifth set of recommendations relates To consumer protection and disclosures By crypto companies and projects Sam Starts with a common sense suggestion And that’s to ensure that crypto Projects and companies properly disclose What they do and get punished if they Mislead investors Sam then proposes something a bit more Contentious and that’s that retail Investors should be prevented from Taking on excessive amounts of debt when Investing in cryptocurrency This is another slippery slope which we Touched on in our video about the Upcoming retail crypto investing ban Perhaps Sam was inspired by that video Because he essentially calls for setting Limits on crypto investing for retail Traders for what it’s worth Sam doesn’t Believe that these limits should be

Determined by the net worth of the Trader as is currently the case with Accredited investors instead Sam Believes that each crypto platform Should have a test that retail investors Will have to pass if they want to access Certain cryptocurrencies or methods of Investing I reckon that most crypto exchanges have Small tutorials and disclaimers to that End already but these could be improved In fact I would go one step further and Say that D5 protocols should all have Tutorials and disclaimers as well this Doesn’t necessarily need to be enforced By law but setting this kind of standard Would hopefully help protect D5 Protocols from unwarranted scrutiny when Something goes wrong speaking of defy The sixth set of recommendations relates To just that here Sam Begins by saying That it’s hard to quote think about defy In the context of existing Financial Regulations I would say that defy should not be Subject to a new set of regulations as It will otherwise just become a part of Tradify it appears that Sam disagrees With creating new regulations for a new Kind of Technology as he calls for Regulating D5 protocols that offer Financial Services which exist in the Traditional Financial system this is Something that Ryan also blasted Sam for

But it looks like Sam didn’t Backtrack On this suggestion The specific bullet point that Ryan took Issue with was the following quote if You host a website that makes it easy For us retail to connect to and trade on A DEX you would likely have to register It as something like a broker-dealer fcm Etc You would also potentially have kyc Obligations Put differently D5 protocols with Centralized front ends would have to Register with Regulators in the United States and collect kyc from their users This would make such D5 protocols no Different from centralized exchanges in My book and perhaps that’s the purpose Of such regulations big think Conspiracies aside the defy related Bullet point that caught my eye was Quote Dows with purely on-chain activity Do not require licenses similar to Individuals however a dow that EG Controls a centralized GUI or markets to U.S retail might This suggestion is concerning because It’s not clear what Sam means by markets To U.S retail using the SEC standards if A website of a dow lists the price of The governance token that would be Considered a form of marketing This kind of threshold could seriously Stunt this promising crypto niche

Sam finishes off this section by Reiterating that nothing he’s saying Here is set in stone it’s just a series Of suggestions that’s meant to get the Ball rolling on crypto regulations this Would be great were it not for the fact That Sam seems to be fixed on forcing Defy to fit into the existing Financial System hard pass Now the seventh and final set of Recommendations relates to stable coins In short Sam believes all stable coins Should be backed by an equivalent amount Of the fiat currency they represent or The government debt of the country or Countries which use the currency this is Not surprising given that FTX seems to Have a close relationship with circle if You watched our recent video about Europe’s upcoming crypto regulations You’ll know that Circle appears to be Pushing for strict reserve requirements For stable coins as a way of keeping Decentralized stable coins down Another thing that Sam and circle have In common is that both entities don’t Want kyc to be applied to all stablecoin Transactions this is because kyc would Negatively affect stablecoin adoption All they want is for kyc to be applied To on and off ramps for stable coins Which makes sense to me by the way you Should know that applying kyc to all Stablecoin transactions isn’t even

Necessary that’s because blockchain Companies like chain analysis already Track all crypto transactions this makes It easy for them to identify which Crypto wallets you own and where the Crypto in your wallet came from spooky I Know just in time for Halloween too Lame Jokes Aside you should also know That the bulk of Sam’s stablecoin Recommendations actually aren’t in this Particular post these recommendations Can be found in another post on the FTX Policy website from way back in October Last year I’ll leave a link to it in the Description if you’re interested the Tldr there is that Sam and FTX view a Stablecoin as being a token that is Backed by the fiat currency it Represents or the government debt of the Country that uses that currency this is Significant because this definition of a Stablecoin once again excludes Decentralized alternatives That said the stablecoin post seems to Include the possibility of stable coins Being collateralized by other assets it Specifically mentions a US Dollars table Coin being collateralized by a large Amount of BTC something that Terror Tried doing with UST shortly after the Post was published too bad they didn’t Fully collateralize UST Painful memories aside the stablecoin Post contains a handful of reasonable

Recommendations such as regulatory Oversight of stablecoin issuers Transparency and reporting of reserves Audits of reserves sufficient reserves And other logical stuff that also Conveniently cuts out decentralized Stable coins So this brings me to the big question And that’s what effect Sam’s crypto Regulation recommendations could have on The crypto Market if they became law let Me reiterate that Sam’s post was Intended to be a starting point for Discussions around crypto regulations And standards Sam’s apparent editing of the post after Receiving feedback reveals that he and FTX are taking the crypto Community Seriously here and that’s a very good Sign in my book Sam’s openness to Feedback could result in very Pro crypto Regulations if he’s able to Rally the Rest of the industry behind him the Thing is that Sam is likely to have a Hard time doing that if he’s truly Trying to turn crypto into another arm Of the existing Financial system Don’t get me wrong there are definitely Some projects platforms and protocols That belong there are others that fall In the middle as well however the Projects platforms and protocols that Are decentralized permissionless and Trustless should not be lumped in with

Their more centralized permissioned and Trusted counterparts now I can’t say I Know where exactly that line is but it Exists somewhere and Crossing it means The end of Financial Freedom Now this is something that shapeshift Founder Eric Voorhees noted in his Lengthy response to Sam’s post which is Well worth reading if you have the time And another big takeaway from that for Me was the difference between Regulations and standards so in Eric’s Own words quote regulations are rules Enforced coercively by the state you Probably agree with some and disagree With others but they are fundamentally Unique in that they rely on violence not Consent end quote By contrast standards are voluntary and Often determined by free market forces Many of the crypto regulation Recommendations Sam made would be better Off as standards an easy example here is Stablecoin collateral I reckon that the Quality of stablecoin collateral would Increase regardless of regulations due To stablecoin competition and I would Say that this is happening already Other crypto regulation recommendations Sam made would in fact be better off as Regulations Which ones should be regulations would Naturally vary depending on who you ask If you ask me though I think that

Disclosures should be regulated for some Crypto projects platforms and protocols That said Eric and many others would Disagree and I understand why Disclosure requirements could be made Extremely high by influential crypto Entities to keep competition out Something that’s been done with Europe’s Aforementioned upcoming crypto Regulations similarly I’m sure Sam and Many others would disagree with my Opinion on having stablecoin collateral Standards rather than regulations that’s Simply because standards aren’t exactly Enforceable and they’re typically set by The largest entity in any given industry Which is not always good At the end of the day it’s a trade-off Regulations and standards both have Their pros and cons it’s going to take Lots of time and money to figure out Which elements of crypto should be Regulated and which ones should be Standardized but it will happen Eventually Let’s just hope that the regulations and Standards aren’t designed to turn crypto Into a dystopian cbdc type system some Would say we’re dangerously close to This outcome already thanks to those Blockchain tracking companies and Centralized stablecoin issuers more About that in the description And that’s all for today’s video about

Sam bankman Freed’s crypto regulation Recommendations if you found them as Interesting as I did Smash that like Button to let me know if you want to Make sure you don’t miss the next one Subscribe to the channel and ping that Notification Bell while you wait for That flick to hit the tube you can check Out coin Bureau clips for more crypto Content from me and the team and tune in To the coin Bureau podcast for in-depth Crypto discussions For those who enjoy listening to me but Can’t stand the sight of me it’s okay I Get it you can also listen to some of These videos in podcast form too we put A selection out every Wednesday You can also follow me on Twitter Instagram and Tick Tock for memes and Live streams and join my telegram Channel for daily crypto Market updates If you’re wondering what cryptos I hold As part of my personal portfolio and how I change it from week to week then you Can find out by subscribing to My Weekly Newsletter and if you want to support What we do head on over to the coin Bureau merch store and get yourself Something warm for winter you can find Your way to all these resources and more Using the links down in the description Thank you all so much for watching and I Will see you next time till then Toodaloo tatibai and Tata

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