Goldman Sachs published a research note on Friday covering blockchain technology and the recent demise of the FTX cryptocurrency exchange.
The investment banking giant believes that regulation is “necessary at the point of trust” within centralized elements of the blockchain industry, rather than on the blockchain itself, to prevent similar cases of fraud. widespread in the future.
The trust point
According to the company’s report, the FTX collapse does not represent a failure of the blockchain technology that served as the basis for token trading on its platform. The problem, he argued, is the lack of regulation covering the gatekeepers of the crypto world, such as exchanges like FTX.
“Regulation is needed at the point of trust, where money is exchanged with the promise of some future return, because it is the time component that creates the opportunity for fraud,” Goldman analysts Jeff Currie and Daniel Sharp wrote.
While former FTX CEO Sam Bankman-Fried denies Such accusations, many front men in the crypto industry suspect that he has exchanged client funds without permission, which ultimately led to the bankruptcy of the company. Michael Saylor, CEO of MicroStrategy alleges who committed a “diabolical” mix of stock and bank fraud.
According to the Goldman note, the lack of existing rules for new financial instruments, such as cryptocurrencies, has created opportunities for more widespread fraud than in other sectors. For example, fraud within the dot-com bubble at the turn of the century was relatively contained, as it still took place in the well-regulated stock market.
The bank stated that cryptocurrencies are likely to continue to thrive, but only if lawmakers choose wisely which elements of the industry to regulate. On the one hand, blockchain-based financial instruments that promise return (for example, the Anchor protocol’s 20% return promise in UST) should be regulated like other securities. On the other hand, less regulation is needed within the realm of decentralized finance (DeFi), as smart contracts lack the counterparty risk of other centralized services.
“This resolves the issue of trust, precisely what regulation would be aimed at to safeguard investors,” the bank said.
Goldman buying the dip
Director of Digital Assets at Goldman Sachs, Matthew McDermott, said last week that the bank intended to invest tens of millions of dollars in acquiring crypto companies in the wake of the FTX collapse.
Although investors are fleeing the sector and the value of cryptocurrency companies is plummeting, the company still sees potential in blockchain technology.
“I suspect that a number of them dealt with FTX, but I can’t say that with absolute certainty,” he said.
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This post Goldman Sachs explains how to regulate cryptocurrencies after FTX
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