Hacking, Fake Volume and Market Manipulation – The Problems of Crypto Trading and How One Company Helps – Benzinga | Jewelry Dukan

Over the past year, the world has witnessed the tremendous potential of cryptocurrency as a new asset class.

Operating alongside a rampant post-pandemic bull run, Bitcoin‘s BTC/USD The market cap climbed to $1.1 trillion, eclipsing almost every US stock market listing apple inc AAPL, Amazon.com Inc. AMZN, microsoft corp MSFT and alphabet inc Google.

In a more symbolic sense, the core values ​​of blockchain — such as anonymity, decentralization, and personal power — were also championed during this run, propelling its proponents to new heights of confidence. But beyond the wave of euphoria, experts familiar with the intricate workings of these blockchain systems began describing a story that depicts an asset class in its infancy.

This phase ripens issues that mature markets — like stocks, bonds, and forex — have long struggled with but largely overlooked in crypto. Recent activity at Three Arrows Capital, Voyager, and Celsius has demonstrated the need for better risk controls, risk management, disclosures, and most importantly, a regulatory framework for the crypto asset class.

problems in crypto

The Three Arrows Capital (3AC) fiasco was an example of what is wrong with the unregulated crypto environment. The story develops as follows:

After amassing $10 billion in assets, largely fueled by unsecured loans, 3AC invested $200 million in LUNA, a USD-pegged stablecoin. When Luna’s algorithm unexpectedly deviated from its pegging protocol, the coin’s value fell from $80 to pennies, triggering a significant loss for 3AC and anticipating future crypto disasters.

Coupled with a 2022 bear market crippling its investments in Bitcoin, Ethereum, and other cryptocurrencies, 3AC experienced a wave of margin calls from crypto lenders BlockFi, Genesis, and Voyageur. Weakened by failed investments like Axie Infinity, which experienced a $600 million hack, the company eventually defaulted on its margin calls and filed for bankruptcy.

The demise of 3AC led to a wave of sharp declines in crypto lending platforms. Voyageur filed for bankruptcy after 3AC failed to pay its $670 million, while Blockchain.com, FTX, Genesis, BlockFi and BitMEX all suffered life-threatening losses.

Possible future solutions

According to some, these errors have shed light on the importance of regulated markets and the need to manage counterparty risk, credit risk, liquidity risk, money laundering (AML) and fraudulent activity.

With proper regulatory guidelines and professional oversight, the crypto market can finally “mature” and enter the juvenile/mature phase of its development. Specifically, regulators envision the future of crypto will include:

  • Expanded focus on counterparty regulation to meet client and regulator requests and requirements
  • Risk management will become much more important – with questionnaires, credit checks and limits, know-your-customer (KYC) and AML protocols all set as requirements like in the regular trading environment
  • Certain operational controls and audit requirements – similar to SOC 2 Type II – with certifications from regulatory agencies
  • Wasting the benefits of bypassing compliance and oversight and striving to build trust through compliance
  • Prosecuting anyone who violates regulatory principles, resulting in job losses, fines and possible imprisonment

The belief is that if the crypto trading environment is ever going to be taken seriously by mainstream investors, it needs to start trading much more responsibly.

Cboe is working to close the regulatory gap

Some operators are championing the regulatory movement.

Through a recent acquisition of Eris Digital Holdings or ErisX, Cboe Global Markets Inc. CBOE has formally committed to bridging the trust gap and bringing the intermediaries who serve ordinary people to the platform so that their customers can trade with confidence.

ErisX is a US-based spot digital asset market, regulated futures exchange and clearinghouse. Among the company’s core beliefs is a belief in the power of appropriate regulation, oversight and surveillance practices to rid cryptocurrencies – and their traders – of market fraud and manipulation.

ErisX Insights claims that centralized exchanges offer a far more secure way to trade cryptocurrency than their decentralized counterparts.

The company writes, “As a centralized exchange, ErisX uses a matching engine to prevent front-running and operates a market surveillance program to prevent misconduct. While market participants on decentralized exchanges can experience the type of market manipulation described [above] …they won’t find it on ErisX.”

To combat sophisticated market manipulation practices, ErisX is committed to employing a mix of adaptive tools and an experienced market surveillance team. “Eventus tools allow us to employ the processes necessary to enable these principles while paving the way for the inevitable market maturation and growth we will see in the future,” writes ErisX.

Because ErisX is subject to regulatory oversight from agencies such as the Commodities Futures Trading Commission and the New York Department of Financial Services, it believes its platform maintains a standard of security that its decentralized counterparts cannot replicate, and only in doing so does the unethical Cryptocurrency can permanently eliminate practices methods exercises.

For traders curious or dubious about ErisX’s push for regulation, the company is hosting a panel discussion on September 20th. Click here to stay up to date.

Featured photo by Scott Web on Unsplash

This post contains sponsored advertising content. This content is for informational purposes only and is not intended as investment advice.

ErisX futures are offered through Eris Exchange, LLC, a Designated Contract Market (DCM) registered by the Commodity Futures Trading Commission (CFTC) and Eris Clearing, LLC, a registered Derivatives Clearing Organization (DCO). The CFTC has no regulatory oversight authority over virtual currency products, including spot market trading in virtual currencies. The ErisX Spot Market is not licensed, authorized or registered with the CFTC, and transactions on the ErisX Spot Market are not subject to the rules, regulations or oversight of the CFTC. ErisX Spot Market may be subject to certain state approval Requirements and operates in NY pursuant to Eris Clearing’s license to engage in virtual currency business activities granted by the New York State Department of Financial Services.

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