Coinbase's Armstrong Calls for More Regulation Aimed at CEX
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Dec. 20, 2022

US regulators should provide more regulatory clarity for centralized exchanges, custodians and stablecoin issuers if they want the industry to move forward in a more compliant way, Coinbase CEO, Brian Armstrong, said in a recent blog post.

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He noted that stablecoins issuers that do not invest in riskier asset could be can be regulated under standard financial services laws by using a state trust charter or an OCC national trust charter.

Armstrong also suggested that regulators should not reinvent the wheel and "borrow from traditional financial services" law for crypto exchanges and custodians. He particularly suggested creating "effective minimum standards" for safeguarding clients' assets and prohibit market manipulation, wash trading, and "other forms of market misconduct."

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The call for more regulation isn't applicable to decentralized finance (DeFi), though. Armstrong says that with self-custodial wallets users can get way more protection than when they rely on third parties as they don't have to trust anyone else.

With DeFi, many projects are being built on smart contracts, which are public and open source by default.

"This means anyone can go audit the code to see if it really does what it claims to do. This is the ultimate form of disclosure," he pointed out.

The Coinbase CEO also called on regulators not to treat self-custodial wallets as financial service businesses, but as software companies, since they "never take possession of customer funds." He also insisted that decentralized protocols should be "equivalent to publishing open source code, which is protected by freedom of speech."

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