Last year was an eventful year for the crypto space. With the collapse of the Terra ecosystem and his TerraUSD (UST) algorithmic stablecoin, $50 billion has vanished from the market in an instant. And most recently, his FTX, an exchange that many thought was too big to fail, collapsed. We have seen namestay businesses and projects disappear with investor money.
Given the events of this year, it is inevitable that governments in all major jurisdictions will pay serious attention to this area on timescales of months to at most years rather than decades. This was pretty obvious to most industry observers even before his recent FTX debacle, and now it’s.
There is much debate in this area as to whether this is positive or not. The purpose of financial regulation is to prevent end-users from being defrauded or deceived by various types of financial operators and to promote the health of the economy as a whole. And it is clear that current financial regulation varies widely in its effectiveness in these respects. Moreover, it is unclear what regulation would be truly beneficial to the industry and its customers.
Perhaps instead of regulation, efforts should be focused elsewhere to ensure cryptocurrencies work. Outlined below are his three main benefits of cryptocurrency rating agencies (community-driven bodies that evaluate projects) and how they can solve cryptocurrency problems.
Rating agencies can move at the pace of cryptocurrencies
The crypto space is ever-changing and fast-paced. About 2,000 new cryptocurrencies have been created between November 2021 and November 2022. This means that the total number of currencies has increased by about 25%. New tokens and projects are appearing all the time.
While some of the emerging projects are groundbreaking and push the boundaries of technology, they can pose many dangers for participants to navigate. The cypherpunk ethos that underlies early cryptographic innovations holds that space is anonymous. But when this anonymity is mixed with a large cohort of relatively naive consumers, it creates a beautiful environment for scams, scams, and pyramid schemes.
Related: What Paul Krugman Gets Wrong About Cryptocurrencies
This can be a problem for regulators as policy implementation takes time. For example, the European Union’s crypto market framework took him over two years to draft and approve. In the time it takes to review and implement protective measures, the space is already exposed to new hazards.
Crypto rating agencies are the opposite. They will be at the forefront of the industry. They can provide consumers with a relatively impartial, open-minded analysis of the underlying algorithms, structures, communities, risks and rewards of various products at a rapid pace commensurate with the development of these new products.
Terra is a prime example of how this works. Some people in the field knew Terra’s tokenomics were unsound. People without a background in quantitative finance or tokennomics will not have the same understanding. What’s more, regulators didn’t even know about Terra until it collapsed. So they couldn’t protect investors from it. Having a knowledgeable and recognized body review cryptocurrencies and the business in this space allows investors to quickly recognize the underlying issues in a project and make an informed decision as to whether or not to take risks. You can make decisions.
Stop bad actors before they cause problems
Regulations are in place to deter bad actors and protect people, but they don’t always work. And it’s not just cryptography. There will always be law-breaking projects in areas that investors should avoid.
This is evident when looking at FTX. The exchange has committed to holding client funds in a fully backed reserve. But when the balance sheet of FTX’s sister company Alameda Research was released, it became clear that the two companies had misused investor funds. This caused FTX users to try to withdraw their money. However, FTX did not fully back up its reserves and was unable to repay its users. This is a fraudulent practice and regulations currently in place should have discouraged FTX from doing this, but they did not.
The implementation of rating agencies could have prevented this catastrophe.Nine months before FTX’s demise, an investigation into the platform revealed links between it and Alameda Research. rice field. However, this information was not widely disseminated and did not reach the majority of his FTX users. Had there been a rating agency in place, this information would have been made more publicly available and users could have deposited their funds on safer exchanges.
Rating agencies act as guards against illegal activity. They will be an extremely valuable and authoritative source of detailed information on the quality of various blockchain networks, presented with varying levels of accessibility and detail. It also helps reduce the broad generalization of cryptocurrencies in the media and the wealth of disinformation available online. Rating agencies can provide investors with the information they need to avoid bad players.
Rating agencies are created by crypto and created for crypto
Financial markets are currently set in favor of institutional investors and high net worth individuals. In the United States, there are laws that prohibit ordinary citizens from becoming “accredited investors” if they do not meet wealth or income standards. This means that ordinary people have to go through third parties such as banks and brokerages to access the stock market. There is usually a fee for access. Individual investors have less freedom and less market access, and their profits are often fed back to other parties.
I wonder as to why the market is set up this way. If the goal is to prevent people from getting sucked into money-losing deals, why allow these same people to gamble their savings at casinos or buy state-issued lottery tickets at apparently losing odds? Is it? It seems as though the government’s goal is to exercise discernment and judgment and to ban the less wealthy from any form of gambling where they have a real chance of winning.
Related: The Federal Reserve’s Pursuit of “Wealth Countereffects” Is Undermining Crypto
This current setting can be cryptographically duplicated if not carefully considered. Traditional financial regulators may impose policies that exist in existing financial markets, such as the aforementioned income criteria for becoming an “accredited investor.” These arbitrary policies could be implemented under the guise of protecting people, but in return could keep retail investors out of the crypto space.
Crypto rating agencies, on the other hand, are founded by crypto natives with retail investors in mind. The goal of rating agencies is to provide investors with the best possible advice, and this requires a deep understanding of the industry. Furthermore, rating agencies are merely guides, not enforcers. Participants can still take advantage of the freedom they have now, just with much better knowledge.
Regulators are eyeing cryptocurrencies and it is clear that new policies are on the horizon. However, it may be outdated and ineffective when it arrives. If the crypto space wants to improve, it needs to take action and implement a rating agency that can ensure that bad players are highlighted and removed from the community.
Ben Goertzel CEO and Founder of SingularityNET and President of the Artificial General Intelligence Society. He has worked as a research scientist in many organizations, most notably Hanson, where he co-developed Sophia as chief of robotics and his scientist. Previously, he was Director of Research at the Machine He Intelligence Institute, Chief of AI software company Novamente LLC, He Scientist and Chairman, and Chairman of the OpenCog Foundation. He graduated from Temple University with a PhD in mathematics.
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.
