Contrary to what Capitol Hill says, crypto regulates itself with an eye on the future – Crunchbase News

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Through Ruben jackson

Cryptocurrency markets are often referred to as the ‘Wild West’ of finance and fintech: a dog-eating dog world, somewhat hazy from a legal perspective, too complex to even begin to attempt everything. type of order or control. And indeed, during the heady days of the ICO boom in 2017, that description might have been justified, given the many stories of shady operators selling get-rich-quick schemes to wide-eyed new investors.

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All in all, those days are now behind us. In fact, the biggest players in crypto are starting to take steps to rule over policies that represent a more extreme deviation from standard practices in traditional markets.

End of July, Sam Bankman-Fried, CEO of one of the largest crypto exchanges, FTX, announced that the company would reduce the leverage available from 100x to 20x to encourage “responsible trading”. A little after, Changpeng Zhao, CEO of the rival stock exchange Binance, followed suit.

Regulators are more and more crypto markets – an inevitable development now that cryptocurrencies are a multibillion dollar asset class. And the discussion gets more complex when we turn to the question, unlike FTX and Binance, decentralized platforms and applications.

Let’s talk about decentralized governance

The governance of the blockchain is a somewhat obscure subject, but anyone wondering “Who controls a blockchain?” Will have addressed certain aspects of it.

Beyond the question of how transactions are confirmed, there are broader questions about what functionality the blockchain can support, how it is upgraded and developed, and how incentives are distributed, among others. .

On many platforms, like Ethereum or even on the Bitcoin blockchain, these issues are handled off-chain between a group of main developers and miners. However, if we take Ethereum as an example, the governance of Ethereum rarely extends to what happens on-chain. Over the years, Ethereum has been misused to issue scam tokens, set up unstable smart contracts, and have millions of dollars in value taken away. more than 100 hacks. Just one time Ethereum governance has intervened. In doing so, he has forever divided the blockchain and the Ethereum community.

From this perspective, it’s easy to see why a decentralized financial ecosystem based on such a platform makes regulators uncomfortable. And it’s also easy to see how draconian far-reaching regulations could easily decimate such an ecosystem that has no way of bringing itself into compliance.

On-chain vs. off-chain

The Ethereum method of governance is not the only one used, and a small number of projects take a different approach, known as on-chain governance.

Guest author Reuben Jackson

On-chain governance shifts the responsibility for decision-making to those who hold the network token, with their voting rights programmed into their tokens, and as such, their voting weight is tied to their financial investment. Tezos is a platform that has placed the concept of chain governance at the heart of its operation.

In the Tezos environment, the network is managed by “bakers” or block validators elected by the holders of XTZ tokens. Bakers can make chain proposals for any changes they would like to see in the network, and other bakers vote on the change. Token holders simply transfer their tokens to bakers who vote according to their preferences.

Tezos is not the only example of a project running on chain governance, but it is a project that takes a holistic approach to chain governance. Another example is Peas, which operates an even more developed approach.

Peas allows its DOT token holders to chain vote for Polkadot Council attendees, who have the responsibility of coming up with issues that the community can vote on.

However, Polkadot goes one step further by allowing DOT holders to have a say in which projects are allowed to operate in the Polkadot ecosystem. To secure one of Polkadot’s coveted parachain niches, projects must participate in an auction process. They can participate in equity loans to raise enough funds for a successful offering, allowing DOT holders to put their tokens into the apps they want to see on-chain.

Building consumer brands

So why are centralized entities and decentralized projects taking steps to self-regulate now? This is probably due in part to the fact that they know regulators will eventually catch up to them.

The other, and perhaps more significant, reason is that crypto companies are coming of age and realizing that they operate in an increasingly competitive environment in which they need to make sure they are appealing to consumers.

The Old West reputation may appeal to a small group of risk-seeking investors, but the vast majority of consumers would be put off by the idea of ​​entrusting their money online to a business akin to a casino operator. in line.

In preparation for mass adoption, blockchain operators are increasingly realizing that they need to project a cleaner, more professional image.

In doing so, they chart the same path as companies like Google, Facebook and Amazon made at the turn of the century. Similar to how the World Wide Web has evolved into a stable and near universal technology, the cryptocurrency universe is poised to become just as much a part of the fabric of our society in the future.

Thus, contrary to the old perceptions which still prevail, the cryptovers learn to apply self-governance. The fact that some of the figureheads and prominent projects are already establishing a new status quo indicates that change is well underway.

After all, these early pioneers are writing the next chapter in financial industry development. Despite the worried voices coming from Capitol Hill, they are ready to show that they take their responsibility seriously.


Ruben jackson is a blockchain security consultant, helping organizations with data structures. Outside of his non-existent office hours, Jackson reports and writes opinions on the blockchain / crypto space. He previously wrote on CBDCs and NFTS for Crunchbase News.

Drawing: Dom guzman

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