FTX CEO Sam Bankman-Fried (SBF) said that while the crypto industry must remain an open economy where peer-to-peer transfers and codes are free, regulatory oversight is crucial for sustainable innovation.

SBF posted its thoughts on potential standards to help the crypto industry prosper while it waits for more established frameworks from US regulators.

Implementation of block lists and sanctions

To control illicit financing, SBF proposed that the industry adopt blacklist rather than whitelist models.

With block lists, all individuals can trade freely unless sanctioned for misbehavior, whereas with allow lists, the door to transaction is only opened to a select few.

SBF argued that a blocklist model is more effective as it allows transactions to flow smoothly and prohibits illegal transfers when detected.

If a user’s address is illegally sanctioned, SBF suggests that OFAC should provide an option to cure the address.

To cure an address, the user simply transfers the sanctioned assets to an authorized address for possible burning or freezing. Failure to return illicit funds will subject the user to legal sanctions.

On hacks and consumer protection

Following the high incidence of hacks in the crypto space, SBF proposes that negotiations with hackers be more efficient with a 5-5 standard.

In this new standard, the first point of call for hackers will be to make consumers whole.

Second, the hacker must agree to return 95% of the stolen funds. The 5% withheld will be considered a generous reward that can encourage more white hat hackers to be incentivized to protect the industry.

On the protection of clients, SBF suggests that retail investors should receive clear and complete information about the asset they are considering.

To determine the suitability of users to use an investment product, platforms could opt for a test-based mechanism where only those who pass the test can access the product.

Licensing for DeFi protocols

SBF said that while protocols do not need a financial license to deploy code or have validators confirm blocks, actions such as marketing DeFi products to US retail investors and hosting websites for DeFi protocols may need some level license and KYC obligations.

SFB added:

“If you host a website that makes it easy for US retail to connect and trade on a DEX, you probably need to register as something like a broker-dealer.”

SBF admitted that DeFi protocols opting for an operating license is a compromise that may be necessary for crypto innovation to continue.

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This post Sam Bankman-Fried Proposes Standard for Sanctions, Licensing for DeFi Protocols

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