Ethereum co-founder Vitalik Buterin recently weighed in on crypto regulation, noting that he is somewhat happy that watchdogs continue to reject crypto exchange-traded funds (ETFs) applications.
In a lengthy controversial Twitter thread on October 30, Buterin stressed that the crypto industry is still in its early stages of attracting institutional adoption due to the need for a comprehensive regulatory framework to govern the market.
Buterin Happy About Rejected Crypto ETFs
The software developer believes the crypto space needs time to attain certain growth with a complete regulatory model that can effectively weed out bad actors from exploiting the ecosystem before embracing ETFs.
Another maybe-controversial take of mine is that I don’t think we should be enthusiastically pursuing large institutional capital at full speed. I’m actually kinda happy a lot of the ETFs are getting delayed. The ecosystem needs time to mature before we get even more attention.
— vitalik.eth (@VitalikButerin) October 30, 2022
Recall that the United States Securities and Exchange Commission (SEC) has denied several Bitcoin spot ETF applications in the past, including one filed by the leading global asset manager, Grayscale Investments, earlier this year.
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Buterin Thoughts on DeFi Regulations
Buterin also shared his thoughts on regulations regarding the decentralized finance (DeFi) sector, noting that the idea of implementing Know-Your-Customers (KYC) rules on DeFi projects will not prevent hackers from exploiting such protocols.
He further pointed out that the rules would only apply to the front end of the platforms, whereas hackers write codes to interact with smart contracts through the back end.
The “KYC on defi frontends” idea does not seem very pointful to me: it would annoy users but do nothing against hackers. Hackers write custom code to interact with contracts already. Exchanges are clearly a much more sensible place to do the KYC, and that’s happening already.
— vitalik.eth (@VitalikButerin) October 30, 2022
The Ethereum co-founder also mentioned that regulations on the front end could work if focused on limits on leverage, requiring transparency about audits and usage gated by knowledge-based tests instead of imposing net-worth minimum rules.
Two Main Regulatory Policy Goals
Buterin highlighted the two main goals of regulatory policies: consumer protection and making it impossible for malicious actors to move funds around the ecosystem.
He further noted that the issues around the second goal are not concentrated in the DeFi ecosystem but in the entire crypto payment systems, which includes centralized exchanges like Binance, Coinbase, and FTX.
Basically, there’s two main classes of regulatory policy goals: (i) consumer protection, (ii) making it harder for baddies to move large amounts of money around. The issues around (ii) are concentrated not in defi, but in large-scale crypto payments in general.
— vitalik.eth (@VitalikButerin) October 30, 2022
Buterin is not the only key industry player to comment on crypto regulations in recent times. Earlier this month, Sam Bankman-Fried, CEO of the leading crypto exchange FTX, shared his regulatory visions for the industry.
The billionaire chief noted that the cryptoverse needs clear regulatory oversight to protect consumers from theft to ensure an open, free economy where users can transfer funds without restrictions.
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