The World Federation of Exchanges (WFE) acknowledges the growing impact crypto-asset trading platforms (CTPs) could have on the broader economy and society. The organization, in a paper released on September 28, offered straightforward comments about CTPs and suggestions for their regulation.
WFE suggests that CTPs should be open to a certain level of regulation to enhance the attractiveness of their markets. It recommended six principles for overseeing CTPs, the first being the separation of functions to prevent trading against their clients. This is a concern often raised by Gary Gensler, the chairman of the United States Securities and Exchange Commission. The WFE maintained that CTPs should refrain from labeling themselves as exchanges unless they adhere to these standards. It also expressed concerns about the assimilation of distributed ledger technology (DLT) into traditional finance exchanges. The WFE urged regulators to recognize the shared benefits of this integration, stating:
Forbidding regulated institutions from operating crypto asset services would push this business away from experienced institutions and into the shadows, potentially managed by inexperienced newcomers, it warned. Regarding FTX’s collapse, the WFE clarified that it was a typical financial services collapse, unrelated to the crypto industry itself.
Additionally, the WFE commented on decentralized finance (DeFi), noting that despite seeming operational differences from traditional finance, DeFi platforms still serve as central entities where buyers and sellers convene. It pointed out the Ethereum Merge as an example, stating it was mainly orchestrated by the centralized Ethereum Foundation team. The WFE suggested applying regulation at the DApps level, but not at the protocol level.
The WFE commended the Financial Action Task Force’s initiative to enforce Know Your Customer regulations in crypto, referred to as the travel rule, and supported the IOSCO Principles for raising standards in crypto markets.
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