Many crypto financial service providers have spent the last several years claiming that potential regulatory and enforcement efforts are unnecessary because they can police themselves. However, scandals and collapses in the crypto industry, such as the insider trading allegations at OpenSea, the massive fraud carried out at FTX, and the failures of Voyager and 3AC, serve as stark reminders that self-regulation is failing to protect investors and maintain integrity in the marketplace.
The recent events have exposed a lack of accountability, consumer protections, and in some cases – a disregard for ethical standards. We can’t blame the public for questioning the true value and reliability of the crypto industry as a whole.
The reality is that many bad actors are taking advantage of the lack of clear regulations to line their own pockets. Meanwhile, honest retail investors who are searching for alternative investment opportunities are being taken advantage of.
Beyond regulatory action - without compromising the decentralized technology of the crypto industry - the crypto industry itself must do more to protect clients and consumers. It’s time for the crypto industry to take real and effective steps towards self-regulation, instead of just paying lip service to the idea.
Where we need to go
The critical infrastructure to ensure self-policing and regulatory compliance is already in place and available – the industry just has to start using it.
In 2018, I started Inca Digital because I was inspired by the freedom decentralization could bring. I knew with my experience in intelligence and national security that I could bring tools to the marketplace that would protect consumers, foster growth in defi, and help build the foundation for blockchain and crypto to impact the lives of millions of people around the world.
The truth is that frauds and high-profile scams are not unique to the crypto industry, they have existed in traditional equities markets for decades. We know what these frauds look like and we have the tools to detect, stop, and trace them. Every single crypto exchange has the capability to prevent fraud and protect thousands of investors from being scammed.
All that is required is for these exchanges to prioritize the well-being of their customers and take action.
Some examples of Inca Digital’s tools that that could be implemented right now, at any exchange, include:
Scam and Hack Surveillance - The tool identifies counterparties that are using client services to launder crypto in real time, providing data on ongoing scams, hacks, and frauds that might be touching your system.
Real-time Anomaly Detection (RAD) - The tool tracks social media activity to identify hacks in real time, along with uptime issues, withdrawal difficulties, trade execution problems, and more - across coins, exchanges, and other crypto service providers.
Cross Market Surveillance - The tool combines crypto market data from 300+ markets and performs cross-market surveillance, analyzing for price, liquidity, fake trading volumes, wash trading, front-running, and more.
Sanctions Entity Database - The tool is self explanatory. You can’t prosecute a wallet, and neither can international courts of law. Inca Digital provides the only relational database of global sanctioned individuals and companies specific to crypto.
Let’s Do Better
If the biggest criticism about the crypto industry is that it is the wild west and too risky for consumers, then it is critical that we use the tools that are available to address those concerns.
My advice to any consumer considering investing in the crypto industry is to ask the exchange they plan to use if they use proactive tools to detect, investigate, and shut down frauds and scams, or if they only take action when prompted by law enforcement. If the exchange is only taking action when prompted by law enforcement, it’s best to stay away.
The crypto industry is still in its infancy, but in order for it to succeed, we need stability and integrity in the markets, or American investors - the men and women who invest their hard-earned money into this industry - will continue to be burned.
This is not good for the long term growth of crypto. The status quo is not good enough. The more this trend continues, the people that will ultimately profit are the ones that are the best at scamming, those that have the least morals and the least amount of interest in growing the industry, not those that are creating the most innovative products that might ultimately transform the financial system.