I’m not a fan of most financial regulations as it seems like many of them just exist to protect the incumbents at the expense of every day people. Of course, the government will sell all of us stories about how these regulations exist for our “protection” - but anyone that looks below the surface can quickly tell that these stories are complete bullshit.
As you may have seen over the last 24 hours, dYdX announced their governance token and are airdropping a chunk of the supply to their early users. Though, there is one major catch - users in the U.S are barred from the airdrop (dYdX used IP matching to filter them out). Why, you may ask? Because the U.S has some of the most complicated and draconian financial regulations out of the entire developed world that it’s actually not worth a company or project even making the effort to be compliant - they’d rather just forego operating in the U.S altogether.
The worst part about all of this is that the regulations don’t even work to stop the bad actors in the crypto space from scamming people. How many obvious pump and dump scams have we seen? How many ponzis? How many rug pulls? Literally hundreds if not thousands of them! And have most of these scammers gone to jail, been made to pay back the money, paid fines or suffered any other sort of punishment? Of course not! All that these regulations do is punish the good actors by causing them to live in constant fear that they may accidentally fall on the wrong side of the law even though they are trying to do the right thing. I believe that this just leads to reduced innovation, reduced economic growth, and an overall weaker United States (or any country, really).
I think that one of the most egregious financial regulations that exists in the U.S (and other parts of the world) are the ‘accredited investor’ laws - essentially, unless you have an individual or joint (with spouse) net worth of $1 million (excluding your primary residence) or have an individual income of $250,000 USD per year (or $300,000 with spouse), you’re not allowed to invest in early stage companies. Of course, the government tells people that this is for their own protection, but then they also let people rack up debt using credit cards, blow all of their money at a casino or on the lottery, or take out mortgages that they won’t be able to service. You may be wondering: why does the government let people do all of this but not invest in early stage companies? Well, the answer is simple - because institutions like casinos/lotteries and banks are the very incumbents that they are working to protect! Additionally, I believe that accredited investor laws exist just to protect the existing wealthy elite.
Though I think that there is a silver lining in all of this for crypto. The one positive thing increased regulations of this ecosystem will do is make it so institutions and bigger players are more comfortable playing in these markets. This is because targeted crypto regulations essentially legitimizes this entire space and will lead to further clarity around what these big players can and can’t do (which should lead to further growth). Of course, we have to be careful that we don’t let these same institutions essentially capture all of the activity and just become the middlemen again!
I’ve talked about regulations a lot in the newsletter and on my YouTube channel over the last few months and it’s mainly because I believe that we are in the ‘and then they fight you’ stage of crypto. Sadly, there is no guarantee that this fight will go the way that we would like it to and it seems like the powers that be are already aggressively targeting crypto (especially DeFi) in a coordinated way. Though, as always, I think the best way we can fight back is to decentralize everything - so let’s get to it!
Have a great day everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.