Coinbase CEO Brian Armstrong Calls For Crypto Industry Regulation

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Coinbase CEO Brian Armstrong released a blueprint on Dec. 20 on regulating centralized players in the crypto space while protecting decentralized innovations.

Armstrong believed that regulating centralized entities such as exchanges, stablecoin issuers, and crypto custodians would be the best thing for the industry. He said:

“That’s where we’ve seen the most risk of harm to consumers, and just about everyone can agree that it should be done.” It is the fruit at hand.

Armstrong on stable coin transmitters

Armstrong added that there is already some momentum in regulating stablecoin issuers and hopes this will happen in the first half of 2023. According to him, stablecoin issuers do not have to be banks except whether they offer fractional reserve loans or invest in riskier assets.

He recommended that stablecoin issuers register as a state trust or OCC national trust charter. He added that such issuers must have rigorous annual audits, reasonable board controls and governance, blacklist capability to meet sanctions requirements, and meet basic cybersecurity standards.

How centralized exchanges and custodians should be regulated

Regarding centralized exchanges and custodians, Armstrong noted that regulations for these entities should focus on implementing strong know-your-customer (KYC) and anti-money laundering (AML) policies and procedures. .

Other than that, their regulations should create a federal licensing regime where one license is enough to operate in a country. Other advised rules include strict consumer protection laws, standards for protecting client assets, and prohibiting market manipulation.

Armstrong on Crypto Asset Classification

The Coinbase CEO also gave his thoughts on how regulators like the SEC and CFTC can determine whether an asset is a security or a commodity. He proposed a “modern Howey test for cryptocurrency”, which would determine whether an asset should be considered a security.

Financial regulators in the United States have been criticized by crypto stakeholders for their failure to provide regulatory clarity on token classification. The CFTC recently declared that Bitcoin (BTC), Ethereum (ETH) and Tether (USDT) can be classified as commodities.

“Congress should also require the CFTC and SEC to clearly publish their categorization of the top 100 crypto assets by market capitalization within 90 days of the enactment of the above legislation, stating whether each asset is a commodity, security, or “other” (such as a stablecoin).

Meanwhile, Armstrong believes the US Congress should pass legislation that better guides industry players.

Local and foreign actors should be regulated equally

Furthermore, he stressed the need to impose a level playing field for local and foreign players in the industry. According to him, foreign companies serving the citizens of a country should be obliged to comply with local regulations.

Citing the collapse of FTX as an example, Armstrong said without such an even playing field; crypto companies would continue to travel to favorable foreign jurisdictions. This gives these entities an advantage over domestic companies that must comply with the rules.

However, he argued that decentralized entities should not be regulated and allowed to innovate. “With the decentralized aspects of crypto, we have the opportunity to create even stronger consumer protections,” he added.

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