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24 May 2022 - Crypto-assets - DeFi - Industry Issues
Adan’s Response to IOSCO’s Retail Market Conduct Report
Since their emergence in 2008, crypto-assets have been increasingly adopted by retail users and can no longer be ignored. The latest studies reveal that in 2021, more than 200 million people hold crypto-assets worldwide, so it is no longer a question of a niche market. The report put out for consultation by IOSCO is therefore an excellent initiative according to Adan in view of the growing interest of retail users towards crypto-assets:
In summary, Adan wanted to draw IOSCO’s attention on several points:
- Concerning the monitoring of crypto-asset trading by retail investors: innovative services based on blockchain technologies (like blockchain analytics, on-chain data collection and exploitation, decentralised identity, etc.) offer new opportunities for regulators to understand the risks raised by crypto-assets for the consumer. Imposing existing rules that are not suited to the specificities of blockchain use cases would lead to missing the opportunity to bring a sufficient level of protection for retail users.
- Adan considers that IOSCO’s misguided approach to crypto-assets could lead to inadapted regulatory requirements for crypto-asset markets (e.g. stating that “popular crypto-assets do not have intrinsic value”). For retail users, crypto-assets offer (1) better access to financial services – especially in underbanked territories, (2) the possibility to access financial services (such as options) to retail users, whereas this was previously only available to investment firms and professional traders, and most importantly (3) a way to cover themselves against certain inflationary trends.
- The Covid-19 crisis has led to a significant sedentarisation of populations around the world, which has facilitated the adoption of crypto-assets by retail users. Covid-19 also led to an increase in cyber attacks – an increase that is by no means unique to the crypto-asset industry. According to Adan, it is important to educate retail users on how to hold, use, trade crypto-assets and select adapted solutions to limit their exposure to risks. In this context, the role of the ecosystem players is key so that they can better understand the risks to which they are exposed.
- While DeFi brings new risks to the crypto-asset ecosystem, its potential for innovation is very significant and provides many benefits to retail users. In terms of regulatory approach, DeFi cannot be assimilated to the investment services offered by traditional financial players as traditional regulation would be inapplicable or even counterproductive to these protocols.