The BoE's Deputy Governor Sir Jon Cunliffe said that the collapse of the FTX cryptocurrency exchange showed why regulation is needed more than ever 👀
Speaking at a conference on decentralized finance and digital currencies on Nov. 21, Bank of England Deputy Governor Sir Jon Cunliffe pointed out that people had been warned.
While Sir Jon said that all "cryptoassets are highly volatile, given that they have no intrinsic value" — something that a fair bit of the crypto industry would dispute, particularly with tokens on smart contract blockchains like Ethereum — the problem that FTX ran into was that its FTT tokens, which primarily offered trading discounts on it platform, were not only highly volatile but also highly illiquid.
"This may appear counterintuitive to those who see regulation as opposed to innovation. But, as I have said before, 'people do not fly in unsafe airplanes'. Innovation may start in unregulated spaces. But it will only be developed and adopted at scale within a framework that manages risks to existing standards."
Which jumps back to that liquid collateral problem FTX had. Pretty much all major stablecoin legislation in the U.S., U.K., EU and other parts of the world have a requirement of highly liquid, 100% backed reserves that would provide redemption. But they actually need stronger safeguards as there are no deposit protection schemes.
While he said he didn't see how the two were related at first, Sir Jon said that on further reflection:
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