The collapse of crypto exchange FTX in November has sparked discussions over what regulating the digital asset landscape could or should look like. The SEC is stepping up its efforts to police the crypto sector, with Chairman Gary Gensler recently announcing tens of millions in fines penalizing Nexo for failing to properly register its crypto asset lending product.
Many prominent figures in the crypto industry are voicing their opinions on what regulation should look like moving forward, such as Andre Cronje, co-founder of Fantom Foundation, who believes that regulating the crypto industry as a whole is "infeasible," but instead regulatory focus should be on licensing for entities that issue or manage cryptocurrencies.
“We charged Nexo with failing to register its retail crypto lending product before offering it to the public, bypassing essential disclosure requirements designed to protect investors,” Gensler said, according to an SEC press release. “Compliance with our time-tested public policies isn’t a choice. Where crypto companies do not comply, we will continue to follow the facts and the law to hold them accountable. In this case, among other actions, Nexo is ceasing its unregistered lending product as to all U.S. investors.”
According to Reuters, financial industry leaders who attended the Reuters NEXT Conference shortly after the collapse of FTX, which left tens of thousands of creditors with missing funds, agreed on the need for stronger regulation and increased transparency in the crypto sector.
"For a lot of exchanges and lending providers and institutions in the space, (there's) a lack of transparency," Crypto entrepreneur and founder of Tron cryptocurrency Justin Sun said, according to Reuters. "The customers basically have no idea where the funds are allocated.”
Cronje told his 379,000 Twitter followers that he believes "regulated crypto, not crypto regulation" is the way forward. "As more centralized entities fail and consumers lose their IOU crypto, the regulators get more support and ammunition to block the whole industry. We need regulated crypto, and let the badlands be," Cronje said in the tweet.
He also shared a post he had written several months prior, in which he called regulating the crypto industry at large "simply infeasible," noting that public blockchains do not belong to any particular geographical dominions. Instead, Cronje argued for "regulated crypto," which could entail companies that issue or manage digital tokens applying for the appropriate licenses, and crypto exchanges that operate in a particular jurisdiction obtaining the appropriate operating license.
"Instead of trying to fight regulatory bodies because of crypto regulation, we should be trying to engage and educate on regulated crypto," Cronje concluded. "What should a token issuance license look like? What should an exchange's activities be expanded to?"
Another crypto mogul who recently expressed support for working together with regulators is Binance CEO and Founder CZ, who wrote in a 2022 year-end blog post that despite the turbulence of the last year for the crypto industry, the industry made great progress in regulatory compliance, which is vital for both user security and encouraging mainstream adoption.
“I am proud to say that Binance has been and will remain at the forefront of this momentum,” CZ wrote.
He said he understands why regulators have grown increasingly skeptical, and that it will be a challenge to regain investors’ trust, but he believes “these are short-term challenges that will prove beneficial for the blockchain space in the long run.” He called for greater transparency, compliance, openness to regulation, and prioritization of user safety across the industry to overcome those challenges.
In May, the SEC increased the size of its Cyber Unit and changed its name to the Crypto Assets and Cyber Unit, according to a release.
"By nearly doubling the size of this key unit, the SEC will be better equipped to police wrongdoing in the crypto markets while continuing to identify disclosure and controls issues with respect to cybersecurity," Gensler said.
One recent policing action taken by the SEC came last week, when the commission announced $45 million in fines levied at Nexo Capital Inc. for failing to properly register the Earn Interest Product (EIP), its crypto asset lending product, according to an SEC release. Additionally, Nexo has been ordered to cease offering EIP to U.S. investors.
“We are not concerned with the labels put on offerings, but on their economic realities. And part of that reality is that crypto assets are not exempt from the federal securities laws,” Gurbir Grewal, director of the SEC’s Division of Enforcement, said. “If you’re offering or selling products that constitute securities under well-established laws and legal precedent, then no matter what you call those products, you’re subject to those laws and we expect compliance.”
