- Yesterday, FTX CEO Sam Bankman-Fried released a long line of regulatory proposals that angered the cryptocurrency world.
- While many of the recommendations are fair, critics argue that others go against the ethos of the industry.
- The SBF has successfully maneuvered a position of both mainstream fame and political influence, however, and his ideas will carry weight.
Crypto enthusiasts have been vocal since Sam Bankman-Fried floated his controversial regulatory proposals yesterday afternoon, but the FTX chief is likely to consider his own endgame.
The man who will become the king of crypto
Sam Bankman-Fried, CEO of the FTX exchange and a darling of the mainstream media, has been the subject of many of my articles this year. In April, I covered it when he oddly likened crypto-yielding farming to a giant Ponzi scheme on Bloomberg. a lot weird podcast, and then back in June when FTX moved to bail out troubled crypto-lending platforms BlockFi and Voyager Digital.
However, today’s topic is regulation, or more specifically Sam takes what industry standards for crypto regulation should look like. Last night, the head of FTX published a lengthy document that deals with everything from penalties to stablecoins and much more. That’s a lot to walk around, so without further ado, let’s dive in.
Much of what Sam suggests is very reasonable stuff. To deal with hacks and exploits, Sam sets a “5-5 standard” that puts customer compensation at the forefront of any potential white hat solution. It also makes a compelling case for tokenized securities, showing how the current clearinghouse structure harms investors and perpetuates unnecessary counterparty risk compared to blockchain solutions (it is worth noting that facilitating tokenized securities appears to be part of Sam’s endgame for FTX).
But on some topics, Sam’s organizational musings have feathered with other figures in the industry. Sam appears to have a capitulating approach to anti-money laundering sanctions and measures, and advocates the publication of extensive ban lists for addresses dictated by government agencies such as OFAC. Not surprisingly, people have a problem with this idea. Fighting against a government that arbitrarily dictates who can and who can’t access money is one of the main reasons why blockchain became popular in the first place. Cryptocurrencies are not only meant to enhance financial access, but also financial freedom. But for Sam and his business ventures, only the former seems to matter in relation to his bottom line.
Another point of contention is Sam’s thoughts on DeFi. While he advocates developer freedom and “decentralized code as rhetoric,” his views also place unfair burdens on protocols that want to serve US users. As per its standards, DeFi interfaces will have to register as brokers and merchants and perform Know Your Customer (KYC) checks. Once again, it is interesting how, if these regulations come into effect, they will favor centralized multibillion-dollar companies like FTX over the “little man” DeFi protocols.
To me, Sam’s regulatory standards look like trying to ride two horses with one rear. He wants to get into the regulator’s good books by acting proactively on US regulations and capitulating to the current situation regarding the OFAC “Tornado Cash” sanctions and the aggressive stance of the Securities and Exchange Commission. But he is also trying to maintain his reputation among crypto-fanatics as someone who has truly invested in the future of crypto technology. To the casual observer, Sam may seem to do both, but to those in the depths of space, his actions seem to register as much more mysterious and self-serving.
Like it or not, the media has made Sam the main contact between cryptocurrency and the rest of the world, never missing an opportunity to praise his “effective altruism” or slap his face on the cover of another magazine. He has great power, both over the financial elite (see Bahamian Conference with Blair and Clinton) and the general public. On the bright side, Sam is receptive to pitching his ideas with others on Twitter, so if the crypto community can craft options for action, there is a chance for Sam’s opinions to change.
Disclosure: At the time of writing this newsletter, the author owns ETH, BTC, FTT, and many other cryptocurrencies. The information in this newsletter is for educational purposes only and should not be considered investment advice.