SEC Sues Binance and Coinbase, Raising Concerns About the Future of the Crypto Industry: Here’s How to Prevent Future Issues, Including Self-Regulatory Steps for web3 venture.

I recently had the opportunity to visit Dubai and attend several events including demo day and meetup setup by XDC ecosystem. Its very impressive the way XDC is growing organically. During my visit, I had the privilege of meeting the co-founder of XDC Network, Ritesh Kakkad. I express my gratitude to XDC Network’s co-founder for sharing valuable industry insights with us. It was a fantastic experience to connect with such prominent figures in the blockchain industry and learn from their expertise. After meeting, I decided to share discussion points with entire XDC community members as this is informative and useful for upcoming web3 startups

Introduction:

The recent issues with Binance and Coinbase are related to the lack of clarity on how to regulate the crypto industry. The SEC has sued both Binance and Coinbase, alleging that they violated securities laws. In the case of Binance, the SEC alleges that the company failed to register as a securities exchange and that it offered unregistered securities to the public. In the case of Coinbase, the SEC alleges that the company offered unregistered securities to the public and that it acted as an unregistered securities broker.

The crypto asset industry has witnessed significant growth in recent years, presenting both opportunities and challenges for regulators. As this sector continues to evolve, it becomes crucial to establish a robust self-regulatory framework that addresses potential risks and protects the interests of investors and users until clear regulation and guideline issue by various regulators. This article explores various aspects of a possible regulatory landscape for crypto assets, emphasizing the importance of transparency, security, and investor protection.

1. KYC and AML Checks for Wallet Addresses
   To mitigate the risks of money laundering and illicit activities, it is crucial to enforce robust Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures for each company and individual utilizing cryptocurrency wallets. This measure would enhance transparency and accountability within the ecosystem.
2. Disclosure and Risk warning to retail customers.
   Crypto Exchanges have a responsibility to provide clear and concise disclosures regarding the risks associated with cryptocurrency trading before retail investors engage in any trades. It is essential for investors to have a comprehensive understanding of these risks to make informed decisions. By transparently and effectively communicating potential risks, exchanges can empower investors to navigate the cryptocurrency market with awareness and caution.
3. Regulated Custodian Accounts for User Funds
   Establishing separate independent regulated custodian accounts for user funds can significantly enhance security and protect investors against potential loss or misappropriation of their assets. This approach ensures that custodians adhere to strict regulations and provides users with greater confidence in the safety of their funds.
4. Insurance Protection
   Implementing insurance protection mechanisms for cryptocurrency holdings can serve as an additional safeguard against potential hacks, theft, or loss of funds. Adequate insurance coverage would provide users with a safety net and encourage broader participation in the crypto ecosystem.
5. Transparency and Fund Security
   Regulatory frameworks should enforce stringent rules to ensure transparency regarding the management and utilization of user funds. Prohibiting unauthorized access or leveraging of user funds by any party and implementing robust security measures would bolster investor trust and safeguard their assets.
6. Regulated Trading Activities
   Trading, over-the-counter (OTC), and market-making activities on cryptocurrency exchanges should be managed exclusively by regulated brokers or OTC dealers. These intermediaries must share their order books with regulatory bodies, undergo regular audits, and provide customers with detailed contract notes for each trade. This approach promotes market fairness and reduces the potential for market manipulation.
7. On-chain Decision Making for Decentralization
   Decentralized Autonomous Organizations (DAOs) and other decentralized entities should adopt on-chain decision-making processes through community voting mechanisms. This ensures democratic governance and facilitates community participation in important decisions affecting the ecosystem.
8. Regulation of Custodian Wallet Businesses
   Given the critical role custodian wallet businesses play in safeguarding user funds, comprehensive regulation of these entities is necessary. This regulation would establish guidelines for operational standards, security protocols, and periodic audits, enhancing the overall trust and reliability of custodial services.
9. Regulatory Approval for Derivatives Trading
   Derivatives trading involving cryptocurrencies should require regulatory approval or licensing. This measure ensures that derivative products meet specific regulatory criteria and that investors are adequately informed about the associated risks before engaging in such activities.
10. Transparency in Token Issuance and Usage
    Any entity seeking to issue new tokens should obtain permission from regulatory authorities. Additionally, founders and issuers should be required to lock their tokens for a specific period (e.g., 1–3 years), providing greater transparency and preventing premature token sales. Transparency around listing fees, market-making agreements, and the use of funds for advertising and marketing should be disclosed to retail users, ensuring fair and informed participation.
11. STO-ICO Compliance and Transparency
    Security Token Offerings (STOs) and Initial Coin Offerings (ICOs) should adhere to regulatory requirements. Funds raised through STOs or ICOs should be released based on predefined milestones outlined in white papers or prospectuses, providing investors with greater assurance and transparency. Additionally, ongoing reporting and disclosure obligations should be imposed on token issuers to keep token holders informed about project progress and developments.

Conclusion

The development of a comprehensive regulatory framework for cryptocurrencies and related activities is crucial to ensure investor protection, market integrity to streamline the crypto industry.

Please note that the following statement reflects a personal view and is not intended as legal advice: The views expressed in this article are solely those of the author and do not constitute legal advice. The information provided is for informational purposes only and should not be relied upon as a substitute for professional legal advice. It is recommended that individuals seek guidance from qualified legal professionals regarding specific legal matters or concerns related to cryptocurrency based product.