Sophia JenniferThe post FTX era has witnessed many changes as crypto exchanges that have their customers at heart bring in new ways of protecting investor funds and increase the confidence of key stakeholders like investors and regulatory authorities.
Again, the post FTX era is a period in which various blockchain based firms face much pressure to change their business approaches. As an example, there is a greater call for legal compliance with national authority requirements such as the licensing regime than before.
Today, we explore the major transformations that have come onto the crypto stage during the post FTX era. We will also focus on how crypto trading platforms are navigating compliance and legal demands in the jurisdictions they operate in.
Overview of the FTX Era
The FTX Era started in 2018 when Sam Bankman-Fried (SBF), a Massachusetts Institute of Technology (MIT) graduate and an experienced exchange traded fund (ETF) trader, founded FTX crypto exchange which grew to become the third largest crypto trading platform in the world by 2021.
Before the FTX collapse the exchange offered various products including derivatives, spot markets and leveraged products. As a result, it used to handle over 11% of the $2.4 trillion derivatives market. Additionally, it became famous after acquiring several high-profile crypto firms that were facing liquidity and viability challenges like LedgerX, Blockfolio and Liquid Global.
The exchange was well-known for spending much funds on marketing its products and brand. For example, it engaged celebrities like Tom Brady, David Ortiz and Kevin O’Leary as its ambassadors. It also made many political and charity donations.
Probably, its greatest sources of weakness include its failure to separate corporate and customer funds. It also lacked professionalism, accountability and transparency. And worse still, it channeled millions of dollars towards political donations.
Sadly, the FTX crypto exchange faced liquidity and viability challenges which led to its bankruptcy in November 2022. With that, Bankman-Fried resigned before the SEC sued him for various crypto crimes.
Changes FTX Crypto Exchange Brought to the Crypto Trading Landscape
Basically, the crypto world learned much from the FTX crash. In terms of crypto trading, crypto exchanges have learned the need for proper risk management. Basically, trading platforms and traders should use responsible trading practices such as setting reasonable leverage ratios to enhance market stability.
The reason is that one of the key causes of FTX collapse was over-leveraging on part of the traders. This is because the platform offered very high leveraging ratios which created a highly volatile market environment which led to a run on FTX.
The Need for Proper Crypto legislation and Compliance
The crypto world has learned that proper legislation and compliance protect both the customers and the crypto businesses. Whereas legislation helps to protect customer funds it also prevents unnecessary collapse of crypto businesses. Therefore, crypto firms should improve their legal compliance and establish appropriate industry benchmarks if they are to become competitive in the cryptocurrency market.
On the other hand, the government should collaborate with crypto businesses when establishing legal guidelines, industry practices and proper enforcement actions. The absence of clear policy frameworks usually leads to market manipulation and frauds, something that contributed to FTX collapse. Therefore, the post FTX era has been rife with regulatory scrutiny and strict regulations.
Several countries have introduced new crypto legislation after the collapse of FTX. As an example, the UK Financial Conduct Authority has introduced a piece of legislation that prohibits crypto companies from advertising without approval.
The Canadian Securities Administrators has designated stablecoins as securities, making them governable by the existing pieces of law. The City of Hong Kong has provided stringent guidelines for cryptocurrencies that need to operate there. In addition, it requires all crypto exchanges to register and get operating licenses.
The FTX exchange saga has ushered in a new era where there is no room for poorly-run cryptocurrency platforms. Sadly, the FTX crash has shown that most centralized crypto exchanges that amass much power may abuse the trust that the customers put on them. Some of them end up manipulating the market and swindle customer funds.
Now, the onus is on every centralized cryptocurrency exchange to show that it has what it takes to respect its customer funds through adopting transparent, accountable and responsible managerial practices.
For example, such exchanges can keep enough reserves to hedge against any possible investment risks. They should also conduct timely security and financial audits and keep their customers aware of the results.
Security and Transparency
When buying Fantom, most crypto trading platforms should institute high-security measures and be transparent in their operations. They should implement rigorous security measures to prevent malicious activities like fraud and hacks. If customers notice any malpractices, like the FTX scam, they may withdraw their funds which may lead to runs.
Automation and interoperability
Trading platforms like centralized exchanges should incorporate advanced automated tools which provide the users with sufficient data required in making investment decisions.
For example, a crypto trading platform may add AI-driven trading bots and other standard features that make crypto trading easy. They should also make use of modern digital asset wallets which are very secure. By doing this, they create a technologically advanced and beneficial system.
Challenges and Shifts in the Post FTX Era
Of course, the post FTX era has come with its own challenges. One of the greatest challenges is legal compliance. Considering that most crypto trading platforms serve an international audience that exist in jurisdictions with different crypto regulation, legal compliance becomes very difficult.
As an example, crypto regulations in the United States are different from those in the United Kingdom or Canada. Therefore, it requires a huge financial investment for a crypto trading platform to comply with different pieces of legislation in different countries.
As such, to comply with crypto legislation in various countries each trading platform may need to establish physical offices in such jurisdictions. They may also require legal experts that study, comprehend and oversee the implementation of such regulations. That practice may increase the cost of doing business.
How Crypto Trading Platforms are Navigating Compliance and Legal Considerations
It is important to note that compliance with existing crypto legislation in countries they operate in helps crypto trading platforms to remain competitive in the crypto market. Failure to comply with crypto regulation has severe consequences.
They may have to fight legal battles that are very expensive and which damage their reputations. At times, they are forced to pay hefty fines for their misconduct. Essentially, there are different types of legal frameworks which any crypto company needs to comply with depending on the country or countries it operates in.
Primarily, crypto companies need to comply with securities regulations, AML/KYC requirements, taxation laws, consumer protection guidelines as well as licensing and registration provisions. Definitely, legal compliance contributes much to the success of cryptocurrency businesses.
Benefits of Gate.io
Gate.io is one of the leading cryptocurrency exchanges that is reputable for its security measures. First off, it strives to comply with all relevant regulations in the jurisdiction in which it operates. Before operating in any country it registers and obtains relevant licenses and approvals.
For example, it complies with the United States regulations. To this effect Dr. Han says, “Gate US has embraced regulations as it enters new states and expanded its compliance teams to meet both current and anticipated cryptocurrency regulations. This approach is critical for the exchange to guarantee legal compliance and continuous service in the present and future for the benefit of users.”
In addition, Gate.io has high standards for protecting its customers’ assets like cryptocurrencies. For example, a third party audits its proof of reserves, from time to time, which increases public trust and transparency. Also, it has a wide suite of assets and trading tools which its customers use.
Conclusion
Crypto trading platforms have adopted various measures to protect their customers from fraudulent activities and to maintain a good standing with national governments. Also, they should comply with crypto legislation which mostly covers securities regulations, AML/KYC requirements, taxation laws and consumer protection guidelines.
