Today, I attended a crypto-related panel discussion at the 3rd annual conference at the Qatar Center for Global Banking and Finance, delving deep into the future of crypto regulation.
Leonardo Gambacorta (BIS): Discussed the types of national regulatory strategies: ban, contain, and regulation.
Sheldon Mills (FCA): Discussed the potential of CBDCs as a digital form of trusted currencies. He acknowledged the significant hurdle to digital currency adoption due to the public's attachment to physical cash and traditional currencies.
David Birch (15Mb Ltd): Highlighted the importance of digital identity laws over crypto-specific laws. He proposed that the solution to off-chain and on-chain discrepancy should be institutional, not technological.
My Reflections:
Contrary to the common perception, I believe the crypto landscape is more about hope than trust. The difference is subtle - while trust requires verification, hope involves trusting and putting effort in advance. The oracle problem, an embodiment of the principle-agent problem, exemplifies this distinction between trust (typified by Bitcoin) and hope (typified by DeFi).
In the context of the oracle problem, Birch's institutional solution presents a contradiction. Proposals for trusted organizations to verify oracle data go against Bitcoin's philosophy of disintermediation. The oracle becomes a paradoxical entity - an unverifiable, predetermined demi-god of the system. Regulation, hence, needs to address the technical realities and inherent contradictions when dealing with trust generation and consensus.
Can we ever completely remove the human factor from finance? Smart contracts might offer predictability and reassurance to investors, but the web of smart contracts behaves unpredictably. Changes in system parameters could trigger drastic deviations from the desired outcomes. So the answer is perhaps no.