The White House published its annual economic report on March 20, and devoted an entire section to digital assets.
The author should be commended for doing so. I strongly agree with the report’s assessment that certain aspects of the digital asset ecosystem pose problems for consumers, the financial system and the environment.
However, as a developer in the digital asset space, I cannot agree with the conclusion that “crypto assets do not currently offer widespread economic benefits.”
To understand how the White House plans to manage digital assets, it is important to examine what is not in the White House report. The untouchable piece of data that makes up the report is a list titled, “Top Ten Crypto Derivatives Platforms by Open Interest.” It includes offshore exchanges including BingX, Deepcoin and BTCC Futures.
While most digital asset advocates would agree with the report that the exchange is not credible in any way, and that open interest is an easily manipulated metric, that is not the case here. The real issue is why the White House report chose to focus on overseas exchanges that lack checks and balances and are not open to US-based users.
What is more revealing is the fact that they have chosen to ignore the largest derivative product available to US-based users, which has been tested and received approval from the Commodity Futures Trading Commission for a safe and regulated launch: Bitcoin (BTC) and Ether (ETH) futures which is offered by the Chicago Mercantile Exchange (CME).
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CME is an entity that complies with all US laws and regulations and, with the launch of the new Micro Bitcoin and Micro Ether futures, has made it possible for retail investors to access safe, regulated and US-based futures products. .
Why did they choose not to mention CME?
Is it possible because CME can only register commodities, questioning the position of the Securities and Exchange Commission that ETH is a security?
Furthermore, none of the platforms mentioned by the White House have name recognition among crypto-native investors. While this may be due to the fact that there are several derivatives exchanges in the market and none of these exchanges can fill the void left by FTX, another omission is evident.
The White House report also failed to mention Deribit, the largest options exchange by volume and open interest. Based in the Netherlands but not available to US users, the company focuses on education and outreach and is more transparent than most on the market. So why not include it?
The White House deliberately excluded legitimate businesses from its list of derivative platforms, a position it could take to paint digital assets as unsafe and unsecured assets.
Derivatives, such as futures and options, are a core component of any financial system. The US – and the White House – will benefit from a thriving digital asset economy that includes derivatives and options markets. And I agree that the exchange listed in the White House report is risky.
But what the White House is missing is that there is a better alternative, one that can no longer be swept under the rug and that is transparent, noncustodial, cryptographically secure and fully open source: decentralized finance (DeFi).
DeFi is completely noncustodial and has no intermediaries, so there are no “entities” to regulate because users are always in control of their funds. In addition, most DeFi uses collateral requirements and access restrictions for leverage: All credit protocols are overcollateralized, and the balance is immediately auditable, as opposed to fractional reserve banking.
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Lack of regulatory clarity from the US SEC and CFTC hinders innovation in the derivatives space.
Most DeFi protocols can and should design to follow the guidelines of self-regulatory organizations such as the Financial Industry Regulatory Authority to protect all users. Clear regulation has its place in any industry, but regulation with enforcement stifles innovation. I see this firsthand as a builder in the digital asset space, and the lack of clarity is keeping US-based entities from entering the US market.
Supporters of digital assets know about financial crises before. Most of us lived through the hellscape that opened up after 2008 due to bank deregulation. The goal is to rebuild the financial infrastructure from scratch, with transparency and the safest way. DeFi is powered by mathematically unbreakable encryption, and offshore-based centralized exchanges are the shadow banks of this generation.
Builders in the DeFi space want to create the safest financial system in history. We want to empower citizens around the world, not private banks or runaway financiers.
And despite what US regulators think, we are willing to cooperate with governments, central banks and regulators. We just need to know that you are arguing correctly.
Guillaume Lambert is the founder and CEO of Panoptic and an assistant professor of applied physics at Cornell University. Research at Cornell focuses on biophysics. He holds a Ph.D. in physics from Princeton University.
This article is for general information purposes and is not intended and should not be construed as legal or investment advice. The views, thoughts and opinions expressed are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.