'Designers and builders are more than capable of designing a better system to meet the requirements of regulators,' BitGo CEO mikebelshe writes. Opinion for PolicyWeek
But you don’t have to understand any of that to see that if a stablecoin is backed by a U.S. dollar, you need dollars in reserve equal to the amount of circulating stablecoins. We should require stablecoin issuers to maintain 1:1 reserves at banks insured by the Federal Deposit Insurance Corp. Quarterly audits of reserves and real-time reporting on mint-and-burn activity should be mandatory.
Many of these exchanges are also participating in various forms of lending. They are doing arbitrage and market making. They are trading and hedging on other exchanges. You can't possibly measure counterparty risk on the exchange because it's the sum of the exchange’s risk plus the risk of whatever other markets they are participating in.
If trading and custody had been separate, we might have found out earlier that FTX was deep into a fractional reserve situation. We would have prevented the hacking and stealing of assets thatDisallow direct trading of digital assets with fiat or off-chain assets.
The downside is that individual clients no longer have visibility into their transactions or into counterparty risk. It’s also unclear what happens to each customer’s funds in the event of a bankruptcy.
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