The United States faces the potential risk of losing major Web3 and cryptocurrency service providers as the Securities and Exchange Commission (SEC) takes action against Coinbase and Binance.
Sergej Kunz, co-founder of decentralized finance (DeFi) protocol 1inch Network, believes that the SEC’s enforcement actions against these centralized exchanges could have a negative impact on the growth of Web3 in the United States. Speaking at the Money 20/20 event in Amsterdam, Kunz expressed concerns about regulatory uncertainty in the U.S. and its potential to harm the industry. He echoed the sentiment of Coinbase CEO Brian Armstrong, who has voiced similar concerns about stifling innovation in the United States and the possibility of companies relocating to other countries.
Kunz mentioned that he witnessed Coinbase’s CEO engaging in discussions with delegates from the United Arab Emirates earlier in the year, exploring the option of establishing a presence in the Middle East. Subsequently, news emerged that Coinbase is indeed considering setting up operations in the UAE.
While the U.S. faces regulatory uncertainties, the Money 20/20 event showcased a mix of traditional finance (TradFi) companies and players from the cryptocurrency and DeFi ecosystems. This suggests increasing interest from traditional finance in Web3. In contrast, Europe has been actively working on creating regulatory standards for the cryptocurrency ecosystem through the Markets in Crypto-Assets (MiCA) regulations. The lack of regulatory clarity in the U.S. has led Web3 firms and proponents to advocate for a regulatory framework.
Kunz highlighted that while MiCA primarily focuses on centralized exchanges, efforts to create frameworks for businesses to offer products and services across Europe have had positive implications for the wider Web3 ecosystem. He also noted that countries like Switzerland and the UAE have adopted an open-minded approach, demonstrating a willingness to help and adapt regulatory frameworks to support value-adding initiatives.
Regulators often struggle to understand the workings of smart contracts and settlements on blockchain systems. To address this, players in the DeFi space, including 1inch, have been engaging with regulators in the Middle East to shape regulatory frameworks regarding DeFi-related products and services. Kunz emphasized the benefits of decentralized settlement through smart contracts, highlighting the risks associated with centralized parties holding users’ money or assets, as evidenced by the collapse of FTX.
Overall, the regulatory environment and uncertainty in the U.S. have prompted concerns among industry players, with the potential for Web3 and cryptocurrency service providers to consider relocating to other countries with more supportive regulatory frameworks.
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