Former Commodity Futures Trading Commission (CFTC) Chairman Timothy Massad believes there should be stronger regulation for lending platforms across the crypto industry, especially in light of the recent freeze of withdrawals by cryptocurrency trading firm Celsius earlier this week.
“A lot of people have losses who didn’t understand the risks they were taking,” Massad said on CoinDesk TV’s “First Mover” program.
Massad, now a research fellow at Harvard University's Kennedy School of Government, said there are areas of concern for lending platforms any time a substantial amount of leverage and lending is involved, and prices stop rising.
According to Massad, those concerns are a function of two different things. The first is connectedness, or “the extent to which one institution, one platform or one decentralized finance (DeFi) arrangement might be connected to other things.” The second is a matter of contagion, he said, which can mean “people just start getting worried.”
Issues regarding Celsius have loomed for some time, drawing skepticism from securities regulators in states like Kentucky. Two years ago, questions were raised about Celsius making uncollateralized loans, and back in October, stablecoin issuer Tether loaned $1 billion dollars to Celsius. When asked if any securities laws were violated on the latter transaction, Massad said that “it’s hard to make a judgment,” citing Tether’s lack of transparency.
“There is the possibility that this was an unregistered investment fund,” he said. “There is the possibility it was making unregistered offers and sales of securities.”
More broadly, Massad adds that for the stablecoin industry, there is a role for stablecoins that are backed by high liquid assets, such as cash and Treasurys, but a regulatory framework is needed.
“I think one can be created under existing law,” Massad said, who also told CoinDesk he is working on a paper with a Harvard Law School professor on the topic. “I don’t think we need to wait for legislation.”
In Celsius’ case, Massad notes that the securities law framework could apply, despite the firm’s obscure operation model.
“I think the people running Celsius had their heads in the sand,” he said.
The recent Celsius kerfuffle could be a catalyst for the larger challenges surrounding the crypto industry and what is deemed stable. “That's where I think we need a bank-like framework,” Massad said. “I think we know how to do that. I think it’s possible under existing law.”
Moreover, Massad said, resources are needed to create a framework of regulation that would impose the same standards that are in place for securities markets that could be used for crypto as well.
“You simply say, any platform that is trading even one instrument, which is a security or a commodity, has to basically comply with some core principles, some basic standards for everything that’s traded,” he said.
That standard would apply to centralized exchanges and DeFi platforms, Massad added.
“We need a framework of reasonable regulation for crypto that can support innovation and that gives people confidence that they know what they're investing in if they choose to invest,” he said. “It’ll help ferret out the meaningful, sensible innovations from the scams.”
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