[Coinlive Talk] Rethinking Regulations: A Push for True Decentralisation

• Stablecoins are integral in cutting down on fees and expediting transfer speeds. They also help hedge the general volatility of cryptocurrency by offering a safer alternative for digital valuation without requiring users to cash out entirely
• Having strong use cases for cryptocurrency is becoming increasingly important, and stablecoins help to serve as a bridge between the old and new worlds
• As regulators begin ramping up their efforts to clamp down on cryptocurrency, Vineeth believes that this will encourage more to build protocols that are truly decentralised

Stablecoins from a core aspect of the cryptocurrency trading ecosystem. Designed specifically to offset the intrinsic market volatility of crypto, stablecoins help traders preserve the value of their fiat reserves without having to thoroughly liquidate or cash out their positions in the market. Most stablecoins are tagged to an external pool of assets, such as fiat currency or gold. USD coin (USDC) for instance, is backed by fiat reserves and is pegged to the U.S. dollar at a 1:1 ratio.

To find out more about stablecoins and the integral role they play in the cryptocurrency ecosystem, we spoke with Vineeth Bhuvanagiri, Managing Director of EMURGO Fintech, the official commercial arm and founding entity for the Cardano blockchain.

“Stablecoins are a way for people who are holding on to more volatile crypto assets to convert their holdings into safer, dollar-like analogies,” Vineeth says. “Stablecoins are the initial step in the blockchain towards real-world applications, such as payments.”

With future plans on enhancing scalability and throughput within the Cardano ecosystem, Vineeth believes that Cardano’s new stablecoin, USDA, would be able to provide substantial increases in the volume to decentralised exchanges (DEXs) on the Cardano chain, as well as offer support for the entire decentralised finance (DeFi) ecosystem. The Anzens platform will be the primary repository for trading activity for USDA.

"Crypto for the most part is a very volatile asset class,” Vineeth admits. “I think that volatility stems from the fact that many crypto projects are hard-pressed to provide real-world use cases, so a lot of crypto’s value is tied to speculation.”

Stablecoins like Cardano’s USDA on the other hand, are backed by actual dollars sitting within a regulated account, which allows for the use of the blockchain as a purely settlement layer for transactions and payments without risking exposure to asset volatility. This in turn introduces stability to the holdings of users without having them liquidate their positions completely into fiat or exit the market entirely.

“My biggest fear with the whole blockchain ecosystem is stagflation, which is what we are approaching right now in the traditional finance (TradFi) world,” Vineeth muses. “Everyone is looking around and wondering what is the actual value that’s being delivered. It’s really important for crypto to have real world applications.”

For countries that are experiencing hyperinflation or poor access to banks, stablecoins in particular serve as a reliable store of value that will remain stable and isolated from socio-political turmoil in the region that may potentially endanger one’s access to their own funds. For Vineeth, uncertainty and volatility in both regional security and domestic markets are key objectives that stablecoins ought to tackle.

And volatile the market certainly can be, with numerous catastrophic crashes happening this year that has led to astronomical dollars being drained from the industry. The market, once valued at a staggering $2.9 trillion in November 2021, plummeted to $800 billion in 2022. Celsius, Voyager Digital, and Terraform Labs have all come under fire for fraud, mismanagement of funds, and selling unregistered securities, leading to an overwhelming decline in confidence in the market as positions were closed and user funds remain unrecoverable. Most recently, centralised exchange giant FTX has also joined in the fray, filing for bankruptcy and being accused of fraud and mismanagement.

It comes to no surprise then, that this most recent development has resulted in billions of dollars either leaving the industry altogether, or moving towards decentralised protocols as opposed to centralised ones. According to CryptoCompare data sourced from DefiLlama, trading volumes on decentralised exchanges were up almost 11% this month.

However, Vineeth remains confident that the centralised Anzens platform will perservere nontheless.

“I do agree that the pendulum has swung from the centralised world to the decentralised group following the collapse of FTX, but I think it may have swung a little bit too far.”

Coinlive’s interview with Vineeth Bhuvanagiri, Managing Director of EMURGO Fintech

“When you’re dealing with crypto assets, yes, the decentralised world may be safer and more secure,” he says. “But when you’re trying to merge the real world to the crypto world and trying to move real world assets, you do need to have safety, security, and trust. I believe the best way to get to that is through regulations.”

He explains that especially for stablecoins, having a centralised and regulated platform is particularly important.

“Anytime you are dealing with the real world, regulation is necessary for the end holder of those tokens,” he explains. “Because at the end of the day, if those tokens can’t be pegged to that real world asset, those tokens are basically worthless. Regulation allows for the token’s value to be pegged to that real world asset.”

Yet it is undeniable that centralised platforms like FTX have been under increasing scrutiny, and if nothing else, have shown that supposedly regulated entities may still be culpable of fund mismanagement, risky behavior, and volatile crashes. Responding to this, Vineeth argues that insufficient regulations were to blame.

“They were not regulated to the level by which they should have been, and ended up misallocating client assets,” Vineeth tells us. “That failure was due to the lack of trust and a lack of regulations on the part of centralised exchanges. By strengthening the bond between centralised exchanges and regulations, I think we can offer a much safer and better product.”

And so have regulations stepped up, especially in the wake of FTX’s collapse, as evident by Securities and Exchange Commission Chair Gary Gensler’s harsh words in an exclusive interview with Yahoo Finance on December 8: “Come into compliance. We have been publicly saying to these crypto intermediaries, to come into compliance with the law. Your field will not last long outside of public policy norms.”

For many in the Web3.0 space, state authority and regulations are anathema to the long-enshrined ethos of decentralisation. However, Vineeth sees this increased stranglehold as a positive development for the future of true decentralisation.

“With the increased regulatory scrutiny, it will actually lead decentralised app (DAPP) developers and builders in the ecosystem to actually build real decentralised applications,” he says. “I think the problem over the last couple of years is that there have been a lot of centralised applications that have been masquerading as DeFi and instrumentalised this label to circumnavigate regulation as opposed to building towards true decentralisation.”

Within this frame, Vineeth believes that it is precisely the heightening of regulations that will propel builders and developers to work towards true decentralisation. However, he also admits that insofar as fiat currency or real-world assets are involved in the equation, it is undoubtable for regulators to keep a firm grip on things. However, that by no means suggests that complete regulation in the space is necessary, or even possible.

“We have to show regulators that look, there can be a regulated way in and a regulated way out, especially for portals or gateways into the crypto ecosystem,” Vineeth says as we close things off. “But once you’re actually on it, the speed limits, so to speak, do not apply. Will it be dangerous? Possibly. But it always requires a certain level of knowledge to be able to safely navigate the Wild West of crypto.”

This is an Op-ed article. The opinions expressed in this article are the author’s own. Readers should take the utmost precaution before making decisions in the crypto market. Coinlive is not responsible or liable for any content, accuracy or quality within the article or for any damage or loss to be caused by and in connection to it.