Thanks to FTX, regulating crypto should be easy: The Editors
As the demise of the FTX crypto empire unfolds — on Twitter, in bankruptcy proceedings, in congressional hearings and potentially in criminal court — lawmakers and regulators are grappling with a question: What, if anything, should they do to civilise a market so rife with abuse?
A few simple fixes should suffice.
For all the grief it might have given individual investors, the FTX debacle has also had benefits. It exposed the flaws of a market that never had much to do with the underlying blockchain technology. It helped deflate the crypto bubble and eliminate some of the riskiest participants. It also vindicated officials who saw peril in the speculative frenzy surrounding virtual tokens with no intrinsic value.
Regulators might be tempted to sit back and hope the crypto market will simply burn out, putting an end to the whole bizarre episode. That would be wishful thinking. All cryptocurrencies outstanding still have a notional value of about $850 billion, and daily trading remains in the tens of billions of dollars. Officials need to act on the lessons of 2022’s fiascos — from the collapse of the Terra stablecoin to FTX — to ensure that renewed speculation never threatens the broader financial system.
Three steps in particular would help.
As a start: Make stablecoins stable. Much like money-market mutual funds, stablecoins purport to maintain a constant value in fiat currency, typically $1. Yet they’re often backed by assets ranging from short-term corporate debt to nothing at all. This makes them highly vulnerable to panic withdrawals — which, if they entail sales of assets in the real world, could disrupt the credit companies' need to fund their everyday operations. The solution: Bank regulators can create a
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