The problem is the crypto community’s skepticism of proven financial safeguards. Large financial systems are centralized for a reason and they seem intent on finding out why by hitting every bump in the road at full speed.
Pretty much everyone in the crypto community would be fine and happy if exchanges were forced to prove they own the users funds. Crypto people generally don't want crypto regulation. But exchanges are not crypto. They are a third party holding your crypto.
The problem is that regulators "confuse" that (or pretend to) and any regulation that comes out hurts the users, and the DeFi space, instead of focusing on centralized business like FTX that are outright stealing users funds.
Also what FTX did is without a doubt already illegal, it's not like it's some kind of loophole or legal thing they did.
Agree. You don’t need extra special “crypto” regulation to know that customer’s assets should not be stolen.
Arguably, fractional reserve banks “steal” customer deposits to invest and pay interest in exchange. They have a very particular license from the government and are monitored (and insured) and rightly so - they are very dangerous.
What's amusing about your comment is that exchanges are the one centralized part of crypto due to the interfce with fiat and they also tend to be where all of the fraud occurs.
> due to the interfce with fiat and they also tend to be where all of the fraud occurs.
Yes, because that's where the actual value is at the end of the day. Regardless of how much people want to pump crypto, when push comes to shove, the recognized value of crypto for the vast majority of people is it's conversation rate to fiat currencies.
Banks interact with the legal system at every level.
So yes there maybe terrible human behaviour at times but very quickly it results in either (a) people being fined or going to jail or (b) laws improving to prevent it e.g. KYC/AML.
Also as someone who works at a bank there is a lot of code which governs what people can and can't do.
> But... they can also be programmed NOT to allow terrible human behavior.
Maybe, if you are a god tier programmer. On a long enough timescale the probability of your crypto project ending up on the rekt.news leaderboard is 1.
Banks actually do have terrible behavior if you think fractional reserve banking is a scam. If banks were not backed by the government printing press they would all collapse.
What's also interesting is that decision-making power is very rarely fully centralized in large financial companies. Boards of directors, fiduciary duties, third-party audits, attorneys, and so on, all structurally serve to decentralize decision making. There is, of course, individual variability, and such structures are not always successful.... E.g. I've read that the board of FTX wasn't an independent board in any meaningful sense.
> exchanges are the one centralized part of crypto
Crypto is immensely more centralised than the American banking system. That’s what makes it resilient. Every wallet’s state is always globally known. Compare that with the series of subpoenas one must serve to learn what’s in whose bank account.
To correct your comment a bit, fraud occurs much more on centralized human-run exchanges that do NOT handle fiat. Handling fiat => licenses => regulation => harder to do fraud and get away with it.
