The New York State Department of Financial Services (NYDFS) is tackling a major regulatory challenge: how crypto exchanges like Coinbase, Gemini and others list and, perhaps more importantly, delist their tokens. is embarking on. A new public service announcement says the call to update the agency's guidance builds on and seeks to formalize existing working standards.
But this movement goes far beyond mere government gradualism and could have national and even global implications.
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My colleague Jack Schickler has a good analysis of today's announcement. In short, the authorities laid out three objectives: to set up policies that allow NYDFS licensees to more proactively assess legal, reputational, and market risks during the coin listing process; The goal is to update the number of coins (currently limited to Bitcoin, Ether, and stablecoins). PayPal and Gemini) and a public comment period for industry participants to voice their opinions.
Although “just” a state financial regulator, everything NYDFS does often has global implications. Even in an increasingly globalized world, New York remains a major hub for economic activity and capital formation, making the agency a leading organization in setting reporting and communication standards that are reflected throughout the financial industry. If you can succeed here, you can succeed anywhere.
Interestingly, the same is true for cryptocurrencies, despite the globalized nature of blockchain (some might say “geographically decentralized”, but that doesn't have to be the case). Let's just focus on NYDFS's track record of delivering regulatory enforcement. Some of these cases literally reshaped the industry, like the Tether case, which reset standards for transparency in stablecoins.
It’s true that the agency’s so-called “BitLicense” was not the model for cryptocurrency oversight that its architect, attorney and former civil servant Benjamin Lawsky, aimed for. However, the set of rules, recommendations, and guidance compiled has had a major impact on the development of the U.S. digital asset industry, and many insiders believe that this is how regulators are moving cryptocurrencies within the established rules framework. I think I created a pace that forced me to push myself inside. Rather than tackling the peculiarities of cryptocurrencies head-on.
Its heritage is certainly mixed. There is no doubt that NYDFS has protected New Yorkers from countless crypto business failures and bankruptcies over the years, especially in the painful year of 2022 when defunct crypto lenders such as Celsius and BlockFi went bankrupt. This was especially true. These companies are prohibited from providing services in the state, and, anecdotally, lured by (now clearly) unsustainable interest rates, they now wish they had not become creditors of the bankruptcy estate. I know many people who are grateful.
However, the highly restrictive Bitlicense system has not always paid off (even putting aside the hypothetical gains that Serbian users would have made by riding the bubble up). The licensees, which include exchanges such as Xapo, bitFlyer and the U.S. arm of Bitstamp, are not well known in New York or as a major hub in the U.S. crypto trading market.
To make matters worse, despite the fact that only 30-odd companies have a BitLicense, they don't even have a 100% hit rate when it comes to business and consumer protection. For example, the now-shuttered Genesis Global Trading division of CoinDesk's sister company Genesis operated under the aegis of New York state but appears to have no real profits.
In any case, measuring whether regulations are “value for money'' is an exercise in futility. Especially in the crypto world, all real-world use cases are inherently unmanageable, and all the excitement takes place far outside the walled gardens of places like Coinbase and Gemini. Mass-market cryptocurrencies have so far arrived on a four-year timeline, and things like retail centralized crypto lending and crypto credit cards only sound like a good idea in a bull market. is.
The reason NYDFS’ recent announcement could have a global impact is because it deals with whitelisting and blacklisting of tokens, and because crypto trading is a global phenomenon. In the larger framework of token prices, it doesn't really matter whether this or that custodial company is awarded a bitlicense, but it certainly matters whether Coinbase lists or delists the token (even if Coinbase Even if “Bump” is silent today).
The agency appears to be paying special attention to market stability when it comes to delisting tokens. In the announcement, NYDFS Superintendent Adrian Harris said that because certain tokens can slip through the cracks or change, what was once considered “okay” to be on the list will no longer be said it must be removed without further harm to consumers.
In my opinion, that seems challenging, if not impossible, and it's not because crypto companies aren't willing to comply or because regulators are incompetent. From a market structure perspective, globally distributed but illiquid assets (i.e. cryptocurrencies) tend to experience rapid price increases. It's hard to imagine a world where a token's price is so tied to its reputation that a request for Coinbase to delist some of its tokens, even temporarily, wouldn't be taken as a harbinger of death. seems difficult.
Additionally, changes to the way companies “self-certify” listed tokens may reduce the number of bad actors in the first place, but they have also set up a regulatory working group to review “weaknesses and vulnerabilities identified by authorities.” When it comes to delisting a coin, it seems hard to imagine that a compliant would be able to act quickly to actually delist the token in question.
This is especially true. This is because the process of delisting a token requires several steps to stay ahead of schedule, such as announcing an announcement and giving the public adequate time to react.
Take BALD, the recent pump-and-dump token that launched Coinbase's L2 network, which launched on a Sunday, amassed a market cap of over $50 million by evening, and emerged the following Monday morning. did. How could regulators have predicted such a thing?
Well, the simple fact is that they're not even going to try – instead they're going to build a supposed “green list” of pre-approved tokens rather than actually working on on-chain tokens. It inherently limits the power of supervision to suddenly exist and can actually cause harm.
Consumers do not really benefit from the lengthy process of both listing and delisting. These rules will only mean that domestic bucket shops like Coinbase will continue to lose out to foreign bucket shops like Binance.
The regulatory objectives, at least in this very narrow sense, do not seem to align with the realities of crypto trading. And that there is a difference between good intentions and good policy.
