Goldman Sachs published a research note on Friday covering blockchain technology and the recent demise of cryptocurrency exchange FTX.
The investment banking giant believes that regulation is “required at the point of trust” within the central parts of the blockchain industry — rather than the blockchain itself — to prevent similar cases of large-scale fraud in the future.
point of trust
According to the company’s report, the collapse of FTX does not represent a failure of the blockchain technology that served as the basis for token trading on its platform. The problem, she said, is the lack of regulation covering the gatekeepers of the crypto world, such as exchanges like FTX.
“Regulation is required at the point of trust, where money is exchanged for promises of future returns, because it is the element of time that creates the opportunity for fraud,” Goldman analysts Jeff Currie and Daniel Sharp write.
While former FTX CEO Sam Bankman-Fried Negates Allegations like these had many cryptocurrency industry leaders suspecting him of trading customer funds without permission, which ultimately led to the company’s bankruptcy. Michael Saylor, CEO, MicroStrategy Claims that he had committed a “diabolical” combination of securities and bank fraud.
As Goldman notes, the current lack of regulation for new financial instruments, such as crypto, has created opportunities for fraud on a greater scale than other sectors. For example, fraud in the dot-com bubble at the turn of the century was relatively limited because it still took place in the stock market, which is well regulated.
The bank stated that cryptocurrencies are still likely to thrive, but only if lawmakers choose wisely which parts of the industry to regulate. On the other hand, blockchain-based financial instruments that promise returns (such as the Anchor protocol’s 20% return promise on UST) should be regulated like other securities. On the other hand, less regulation is needed in the decentralized finance (DeFi) space, as smart contracts lack the counterparty risk of other centralized services.
“This solves the problem of trust, which is exactly what the regulations aim to protect investors,” the bank said.
Goldman buys the dip
Goldman Sachs, Head of Digital Assets, Matthew McDermott, He said Last week, the bank intended to invest tens of millions of dollars in acquiring crypto companies in the wake of the FTX crash.
Even as investors flee the sector and crypto companies drop in value, the company still sees potential in blockchain technology.
“I suspect a number of them traded FTX, but I can’t say that with cast iron certainty,” he said.
Goldman Sachs post explains how crypto will be regulated after FTX debuts on CryptoPotato.