On July 28, US Securities and Exchange Commission (SEC) Chair Gary Gensler released a video outlining how the SEC will regulate cryptocurrency trading platforms. He outlines some reasonable goals, but his suggestions would make them impossible to achieve.

Market manipulation, spoofing, front-running, phantom liquidity, shadow liquidity, flash crashes, and other issues concerned Gensler. According to him, SEC regulation aids the New York Stock Exchange in these areas.

Retail investors must be able to use exchanges without encountering such difficulties. However, Gensler’s stated goal is that all other exchanges be prohibited. Most people support regulation because it allows individuals to trade safely; “nanny staters” oppose it because it discourages risk-takers from trying new things.

The Formation of Crypto Exchanges

Discontent with regulated financial markets prompted the first development of cryptocurrency during the 2008 economic meltdown. Cryptocurrency exchanges provided novel methods for naturally addressing Gensler’s concerns without requiring complex legislation and enforcement.

The experiment will give vital information for future development, even if the products do not live up to their claims. Although some of these concepts have been explored in conventional markets, crypto allows for more incredible speed and scale adoption in a zone where traders recognize the importance of security.

SEC Reminder Regarding Digital Asset Regulation

As per Gensler, regulations have to be “technology-neutral.” However, he claims that safety laws for conventional and electric vehicles should be the same. For instance, an engineer with a novel concept for personal transportation wouldn’t have time to study all the pages of automotive regulations.

Let alone build anything that complies with them. It includes seat-belt laws and regulations from both the US and other nations. The ideal strategy is for the engineer to produce the best design, then determine whether it needs any additional safety measures.

Similarly, the SEC should consider genuine issues with cryptocurrency exchanges and provide technology-specific remedies. That could mean buying things from conventional financial markets; however, it could also mean trying new things.

SEC: AMMs Expanding as an Alternative to LOBs

In the past ten years, traditional limit-order books like those kept by the New York Stock Exchange (NYSE) have faced harsh criticism, notably from Gensler. Automated market makers (AMMs) are a swiftly expanding substitute to limit order books (LOBs), which the NYSE and many other exchanges utilize in the cryptocurrency market.

Gensler doesn’t work with AMMs because they do business directly with customers instead of bringing buyers and sellers together. On a modest scale, several technologies have been tested using conventional resources. However, full-scale tests of these and other developments are only being conducted in the crypto sphere.

I’m confident that some of them will mature to the point where all financial markets adopt them after development. It is a far more viable answer to long-standing exchange issues than adding a few extra SEC regulations on top of the existing ones. Nobody is interested in Gensler’s drive to make cryptocurrency exchanges resemble the NYSE.


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