The Infuriating Patchwork of Crypto Regulations Is Good for Crypto

Calls for a centralized crypto regulator in the U.S. feed the false narrative that the industry is unchecked.

AccessTimeIconDec 13, 2021 at 8:12 p.m. UTC
Updated Jun 14, 2024 at 4:44 p.m. UTC

Like many others, I view last week’s House Financial Services Committee hearing at which six crypto CEOs explained the industry to Congress as a watershed moment for the industry in the United States.

The dialogue was collegial and constructive, and felt grounded in a genuine desire to speak with each other rather than past each other. The discourse dispelled a number of myths, including the mistaken belief that crypto is currently unregulated. It felt like a major step forward for everyone.

This is why I’m concerned about recent calls for a single, centralized regulator for the crypto industry, which feeds the false narrative that crypto is unregulated and therefore in need of a new overseer.

As we seek to build on the encouraging momentum established by the recent hearing, it’s important to carefully weigh the trade-offs associated with this idea.

Current crypto rules are messy. It’s been called a patchwork and fragmented. You might even say it’s decentralized. It’s certainly not perfect. But it has allowed the crypto industry to emerge, grow and mature. The role New York state (my former employer) took to regulate the space is an example of this. As such, it’s worth considering the trade-offs associated with moving from the chaotic system we have today toward a more single, autocratic regulator.

A few points are worth considering:

First, as a practical matter, it would take a very long time to transition to a single regulator. Legislation would likely be required. Then, regulators would need to write rules and hear public comments. Staff would need to be hired. Only then would the heavy lifting of rearchitecting the organizational structure of our regulatory system likely begin, a process that could take many years. Given the pace at which crypto is moving, putting any type of pause on things to do this would be a setback for U.S. competitiveness.

Second, and more strategically, today’s system optimizes for optionality and flexibility rather than certainty and efficiency. This is the right trade-off for a nascent industry in the early stages of its development. It’s not easy navigating the many different federal and state regulators, but there is benefit to the madness. It provides fertile ground for experimentation and testing.

Third, a single centralized regulator is akin to being “judge, jury and executioner.” As a former regulator, I know how easy it can be to get things wrong, especially when it comes to new and emerging business models and technology. Putting all of the regulatory authority and power in one place is risky for everyone, consumers and industry alike. While there may be certain benefits to large incumbents, this would not be good for the ecosystem as a whole.

Finally, today’s multi-regulatory landscape has important benefits for consumers. It allows for multiple cops on the beat, producing healthy and protective regulatory redundancy. If one regulator or law enforcement agency misses or overlooks a problem in the market, there’s a better chance someone else will catch it. The system today enables state regulators to pursue regulatory approaches best tailored to the local populations they serve.

Some people make the mistake of assuming regulators are more independent and impartial than they actually are. If this year – even the past week – has shown us anything, it should be a realization that priorities and emphasis can shift, sometimes dramatically, with a change in administration and senior leadership. The multi-regulator system reduces the shocks from this risk.

For an industry that values decentralization, the benefits of avoiding a single point of failure should be apparent.


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Matthew Homer

Matthew Homer, a CoinDesk columnist, is a VC investor and advisor to founders in the crypto space. He was formerly the first-ever executive deputy superintendent for research and innovation at the New York State Department of Financial Services.