May 2023: Regulatory Rapids

May 2023: Regulatory Rapids

June 6, 2023

When there’s a blockage to a river, there’s nowhere for the water to travel. Pressure builds up, and eventually, the river channel jumps course to create a new channel following the path of least resistance. This is what geographers call avulsions.

As regulatory pressures and blockages have started to pile up in the US, crypto is now going through its own process of avulsion. Many companies based in the US are redirecting their flow of activities  – diverting to new channels like Dubai, Hong Kong, and Europe where the digital asset industry is being welcomed with open arms.

But activity flows don’t just divert anywhere – they jump to pathways that already have a solid foundation. In crypto’s case, that means clear regulatory guidelines amongst other things. Crypto players need to know how to flow, and which direction to go, which is only possible with the right rules and policies in place. And the month of May was just the time that introduced several exciting regulatory developments across multiple jurisdictions in the world. 

Finding new grounds

For starters, Dubai has been leading crypto regulatory developments since earlier last year, announcing its own dedicated regulatory body for virtual assets: VARA. This is already attracting global crypto companies left and right, with top dogs like Gemini, Binance, and Bybit announcing their opening in the UAE. 

But VARA has also gone above and beyond, not just developing rules for exchanges to play, but including a wider range of service providers in the picture – like custodians. This is what allowed Hex Trust to be the first-ever custodian to receive the operational license from VARA, as an initial step to cultivating a healthy and diverse crypto ecosystem in the region (thanks CoinDesk and Decrypt for the shoutout). 

Similar news circulated on the other side of the world in Europe, where the long-awaited Markets in Crypto Assets (MiCA) regulation was approved late April. Arguably the most comprehensive and extensive regulatory policy covering digital assets in the world, MiCA is predicted to be the catalyst to fill the gaps of uncertainty and fog in global crypto regulation. And much like Dubai, MiCA outlines guidelines for a diverse range of service providers, signaling a solid base foundation for the EU’s crypto activities in the coming days.

Not to mention Hong Kong, the global financial hub leading recent news headlines for bolstering crypto regulation and ecosystem building. The city’s new crypto regulatory policy came into effect on 1 June 2023, officially allowing retail trading of crypto and introducing transitional arrangements for virtual asset trading platforms under the new licensing regime. 

To top it off, the Hong Kong Monetary Authority (HKMA) commenced its e-HKD pilot program for a retail CBDC earlier in May and announced a collaboration with the UAE Central Bank to strengthen virtual asset regulation and development between the two financial markets. 

But a good regulatory framework doesn’t always mean it’s great. 

Despite making substantial strides to increase safe and compliant accessibility to crypto, Hong Kong’s framework is still missing one important link: the regulation of custodians. Our Head of Custody Giorgia Pellizzari, captures the point perfectly on Blockworks, where she explains how the first step to creating a clear and protective framework starts with establishing rules for custodians to operate transparently and legally (which, by the way, would have helped avoid the FTX drama). 

Read the piece

Aside from segregation of duties, custodians operate on several other fundamental pillars that highlight why they’re essential for a healthy and scalable crypto ecosystem. Find out more in our piece outlining the 10 foundational principles of a custodian – and why they matter.

All in all, it’s clear now that crypto is jumping to multiple different channels outside the US – ones with more favorable directions for the ecosystem. 

This is exactly what our CEO & Co-Founder Alessio Quaglini, highlighted in his recent interview with Forkast IQ. His segment elaborates on the US’ hostile stance on crypto regulation, and how it’s pushing the ecosystem offshore to friendlier jurisdictions like Asia and Dubai.

Web3 is definitely not dead

As news headlines go, there’s always a hyper-focus on either the shocking or the negative – and most of them were related to regulations recently. This is a good sign though, one that signals that Web3 is very clearly on the minds of regulators, investors, and major players worldwide, even those outside the ecosystem. 

Web3 isn’t fazed by news. It’s been on several of the steepest and scariest rollercoaster rides and seen the best and worst play out all at the same time. The past few months’ global conferences, new projects and chains rolling out, and ecosystem partnerships are just a testament to our community’s resilience and lively spirit. And as always, we are right there building in the thick of it.

This month, we enhanced our longstanding collaboration with The Sandbox, officially being listed as a certified partner of the leading metaverse platform. The partnership enables institutions to access fully licensed and highly-secure custody of LAND assets, as well as the buying/selling and leasing of LAND. 

More details

As the extra cherry on top, we also announced a partnership with LimeWire to provide secure custody of the company’s $LMWR treasury. LimeWire is a membership platform for content creators, artists, and brands to create membership-based communities for their most passionate fans while allowing them to maintain ownership through blockchain technology.

Being advocates of asset segregation since day one, it’s exciting to finally see it play out – seeing leading players use custodians to ensure investor protection. Stay tuned for more details on our partnership with LimeWire. 

Perhaps the best reflection of Web3’s rowdy innovative energy are the conferences. Here’s our team in action at several global Web3 conferences this month, across Dubai, the US, and more! 

Geographers say river avulsions can, on rare occasions, be one of the scariest natural forces on earth. But they’re also essential in helping to build and nourish new land as a natural part of a river’s life cycle. 

So yes, while crypto’s avulsion may have been triggered by negativity in the US, it’s arguably essential for it to happen for the broader industry to grow leaner and stronger. To come out the other end with more clarity and direction, with the right tools including regulation, policies, and investor protection. 

Who knows – the US may welcome crypto back further downstream once the regulators meander back to a place of logical reasoning.  

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