As we continue to witness the growing popularity of cryptocurrencies, it’s becoming increasingly clear that the industry needs a fundamental shift in approach. The recent news that Crypto.com has obtained an Australian broker license is a significant step towards this goal.
Protecting Retail Investors with Proper Regulation
For too long, cryptocurrency exchanges have operated with minimal regulatory oversight, resulting in catastrophic consequences for investors. The collapse of FTX exposed the dangers of unregulated exchanges that attempt to be everything to everyone – marketplace, custodian, market maker, token issuer, and more. Billions in client assets vanished due to the industry’s acceptance of a flawed notion: basic broker-dealer regulations don’t apply to crypto.
Mainstream Adoption Requires Real Regulatory Frameworks
Let’s be honest about the current state of crypto trading:
- Memecoins are marketed like lottery tickets
- Influencers shill tokens without disclosing payments
- Exchanges hide behind VASP registrations while allowing manipulated markets to operate
This approach is not only a recipe for keeping crypto on the fringes but also undermines its potential for mainstream adoption.
Traditional Finance: A Model Worth Emulating
Traditional finance isn’t perfect, but it has one critical advantage: robust regulatory frameworks that protect investors. In contrast, the current state of crypto regulation is woefully inadequate. Investors can’t find the same level of protection at VASP-licensed exchanges as they would on traditional markets.
The Flawed VASP and E-Money Approach
The VASP and e-money approach is fundamentally broken for actual trading. When registered as a VASP, an exchange says it moves digital assets around – but that’s all. There’s no real responsibility for market integrity, no severe requirements for asset segregation, and no meaningful protections against market manipulation.
The Need for Broker Infrastructure
Proper broker infrastructure includes:
- Client asset segregation
- Real-time risk management
- Crosschain trading without exposing users to bridge risks
- Actual compliance with securities laws
We need this infrastructure not because it’s sexy but because it’s necessary. Technology alone isn’t enough; we also require a proper regulatory framework.
Traditional Brokers: A Model Worth Emulating
When you open an account at Fidelity or Charles Schwab, you’re protected by actual regulations with teeth. Your assets are segregated, and the broker must maintain certain capital levels. They can’t gamble with your money or front-run your trades.
The Solutions Aren’t Complicated – Just Hard Work
The solutions to our regulatory challenges aren’t complicated; they’re just hard work that few people want to do:
- Get proper broker licenses in every jurisdiction where you operate.
- Build or use infrastructure enabling proper broker operations, such as real-time settlement and actual risk management systems.
Being a "technology provider" doesn’t absolve you of responsibility for protecting retail investors. We need better infrastructure, not creative ways to dodge regulations.
Progress in Crypto: A Mixed Bag
We’re seeing some progress:
- Crypto.com’s move is a good start.
- Legitimate brokers are entering the space with proper licenses and infrastructure.
- Regulators are finally cracking down on the VASP nonsense.
But we still need more. The choice facing crypto exchanges is simple: evolve into properly licensed brokers with actual infrastructure or become irrelevant.
Building the Future of Finance
Using proper broker licenses and purpose-built infrastructure is essential to building a future where crypto trading is safer than traditional finance, not more dangerous. That needs to change.
Your move, crypto exchanges – actual broker licenses or bust.
