The publication recognizes the significance of diverse stakeholders cooperating for the greater benefit of fostering the cryptocurrency industry.

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WEF Considers Crypto Regulation Urgent to Remove Uncertainty

As a collaborative effort facilitated by the Digital Currency Governance Consortium, this publication presents a global perspective on the various regulatory pathways for crypto assets. In order to eliminate ambiguity, the white paper deems crypto regulation imperative.

WEF believes that global coordination is necessary to prevent inconsistent enforcement and regulatory arbitration. The authors noted that the regulation of crypto assets faces a number of obstacles. The article asserts that the presumption of replicating regulation and activity hinders the process.

The Crypto Assets Ecosystem Is Unable to Fit Regulation

The paper demonstrates that the ecosystem of crypto assets is comprised of elements that do not fit neatly within the current regulatory framework. As a result, not every cryptocurrency is a flawless fit for the activity-based and intermediary-oriented regulatory approaches. Even if crypto-asset activities replicate those of the traditional financial sector, this difficulty exists.

The white paper published in May 2023 explains that the anonymity exhibited by crypto mixers, decentralized exchanges, and self-hosted wallets increases the complication of the regulation process. In addition, regulation is becoming increasingly difficult due to the fact that potential interconnections between cryptocurrencies and traditional finance would exacerbate the risk of contagion.

In the wake of FTX's abrupt demise in November, the crypto industry has recently manifested contagion risks. It plunged the entire crypto industry into turmoil and a protracted winter characterized by widespread bankruptcies.

Multiple Classifications of Regulatory Framework Methodologies are Identified in a WEF Publication

The WEF publication developed a number of classifications comparing diverse regulatory frameworks. First, it considers the outcome-based approach, which prioritizes the same risk classification to achieve similar outcomes. In addition, risk-based regulation is a method in which the intervention for each activity is influenced by the associated risk.

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This paper examines agile regulation as an approach that combines reactive and iterative methods. This strategy recognizes that policy and regulation development is not solely the responsibility of the government. In its place, it becomes a multi-stakeholder initiative.

Adoption of the agile regulation would involve regulatory sandboxes, no-objection letters, and guidance from regulators. The paper uses Switzerland's Financial Market Supervisory Authority as an example of a responsive regulator. Alongside Japan, Switzerland is a jurisdiction employing self-and-co-regulation approaches.

Critics criticize the viability of regulation by enforcement

The paper identifies the United States as the only country in which regulators employ regulation by enforcement. The publication deems unfeasible the U.S. enforcement strategy for establishing a framework. The approach precludes the possibility of engaging in a substantive discussion about what to regulate.

The WEF paper offers three broad recommendations to regulators, the cryptocurrency industry, and internal organizations. However, it was emphasized that the adoption of best practices could be accomplished through collaboration and coordination.

The paper urged policymakers and industry stakeholders from various jurisdictions to collaborate in order to ensure consistency and clarity. The WEF requests that regulators and governments adopt a position of transparency as a means of addressing cross-border issues.

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The WEF publication lays the groundwork for the formation of a Blockchain and Digital Assets team tasked with evaluating the efficacy of various regional regulatory approaches. WEF believes in the coordinated efforts of establishing public-private coordination in order to have meaningful conversations and first-hand knowledge about the unintended consequences of various regulatory frameworks.