The worldwide cryptocurrency market continues to grow as new products make it easier for people to invest, sell and trade with cryptocurrencies. But without a change in the mindset of regulators, many of these products will fail to make it to consumers.
Don’t look at anything other than Coinbase last week Plan off Supply of its new nding products due to threat of legal action by the Securities and Exchange Commission (SEC). The “borrow” program will be Allow users If they hold certain types of cryptocurrencies, earn interest on their holdings. The SEC’s argument for the lawsuit is that the NDN program violated long-standing security rules, even though it resembles a traditional theoretical savings account.
It’s unfortunate. This not only hinders the innovation of financial technology, but also denies consumers the ability to earn high interest rates in the face of rising inflation. There is a better way to deal with innovative financial products than threatening lawsuits. Their regulators are called sandboxes, and the SEC should adopt forward-thinking states and adopt one.
A sandbox is an alternative regulatory framework for dealing with products that come with regulatory uncertainty. Companies that have such products may apply to have their product tested for a specified period of time as long as they still comply with consumer protection standards. If they are accepted in the sandbox, they can give it to consumers. When the test period ends, they either comply with existing regulatory standards or they work with regulators to change those values based on their experience in the sandbox.
The first regulatory sandbox was set up in the UK In 2014. Since 2015 it had 700 participants of which about 80 per cent companies still exist, much more than non-sandboxed companies. Companies in the sandbox were also more likely To raise money, Collects more venture capital funding, and brings it to market faster.
There are now 57 different jurisdictions and 70 different sandbox programs in the country. Arizona was the first state to receive a sandbox in 2018 and the Bureau of Consumer Financial Protection (CFPB) recently updated its sandbox program at the federal level. The most common types of sandboxes worldwide are in financial technology. While there are 27 companies in the financial technology sandbox across Arizona, Hawaii and West Virginia, the CFPB sandbox provides regulatory relief across 10 different financial products.
One of the most exciting companies to participate in a sandbox is BlockFi. Like the product Coinbase recommended, BlockFi offer Cryptocurrency account carrying interest in Hawaiian sandbox. But BlockFi has had problems with other states’ attorney generals for the same product. New Jersey, Vermont, Alabama, Texas and Kentucky Ordered Closed and discontinued or show-cause orders to the company for products that carry its interest.
Perhaps these attorney generals and financial regulators did not have a regulatory framework to deal with this new type of financial product. Instead of allowing unauthorized innovation, they have decided to discontinue the products altogether due to some non-zero risk of harm to consumers. Since the SEC has tried to fight the cryptocurrency industry, it has made almost the same calculations.
But this does not have to be the case. CFPBs and states have shown that sandboxes can encourage innovation by working together with regulators and firms on new financial products, while protecting consumers. The reformed CFPB Sandbox issued eight non-action letters in 2020, assuring companies that they could deliver their new products. Some products include small dollar loans that offer cheaper rates than payday loans, allow them to be made available before paying wages, and have autosave programs for employees. All of these programs have consumer-friendly benefits; They just needed regulatory assurances to get off the field.
The cryptocurrency industry developed rapidly 10 years ago from a little-known technology to an estimated ট্র 2 trillion market, where hundreds of companies around the world serve consumers. Approximate 46 million Americans Own bitcoin (say nothing about alternative cryptocurrencies). The recent recognition of El Salvador Bitcoin was controversial as a legal tender and other reforms, But they show the growing acceptance of cryptocurrencies. Whether the SEC wants to acknowledge it or not, changes in our financial system are already here.
Now what is happening with Coinbase will certainly happen in the case of more financial technology companies down the road. The threat to sue every company with a new cryptocurrency product is not just a misuse of taxpayer resources, it puts the United States behind blockchain and cryptocurrency technology.
The SEC will follow the lead of the state and the CFPB and adopt a regulatory sandbox for cryptocurrency. In the meantime, states should continue to lead and bring some necessary regulatory federalism to financial technology and other industries.