Why are regulations essential in Crypto Market? How does Scallop lead the way?
The crypto industry has experienced significant highs and lows in the past year. In a matter of months, Bitcoin reached its record high of over USD $68,000, only to plummet to under $18,000. This stark contrast underscores the market's volatility, making investors anxious about the future.
The market crash of May 2022 further contributed to this uncertainty, as the value of cryptocurrencies suffered an extended and sudden fall. The estimated loss of more than $2 trillion in market value was a significant blow to the distributed ledger technology industry and its stakeholders. Given the uncertainty and constant fluctuations in the market, regulations are fundamental to protecting consumers' financial assets and creating a safer trading environment.
Many regions, including the EU, LatAm, Asia, and the Middle East, are gearing up to establish robust regulatory frameworks for crypto. For example, South Korea is currently working on the Digital Asset Basic Act, which is set to be introduced in 2023. This regulatory measure aims to curb crypto crime and provide more clarity for legitimate players in the cryptocurrency space.
South Korea is home to Terra- the company with dual crypto collapses of Luna and TerrraUSD that resulted in significant losses for investors in South Korea. This event further accelerated the call for tighter regulations to safeguard against future cryptocurrency mishaps.
Overview of MICA regulation
The Markets in Cryptoassets (MiCA) Regulation is a landmark legislation in the world of crypto assets and stablecoins, adopted by the European Parliament on April 20, 2023. With this regulation, the EU will establish a comprehensive approach to crypto asset regulation across all 27 member states, allowing seamless business transactions between countries without additional paperwork. The regulation is set to become effective sometime between mid-2024 and early 2025.
Under MiCA, firms seeking approval must adhere to a higher disclosure standard, including preparing a detailed white paper for each asset offered. Moreover, issuers of stablecoins must comply with even more stringent rules, such as maintaining sufficient cash reserves to support customer funds.
MiCA also requires crypto firms to report the environmental impact of their operations, which was included following the removal of an all-out ban on the proof-of-work mechanism from an earlier draft.
Thus, the unified approach to crypto asset regulation facilitated by MiCA creates an environment that encourages cross-border business growth, benefiting both issuers and investors alike.
"Strong regulations are important and necessary to foster the industry's growth," says Bruno Sousa, head of US and New Markets at Hashdex. "From the investor's standpoint, having access to this new asset class through regulated entities and investment funds helps mitigate the risks."
How Scallop is best prepared for MiCA regulations
Scallop, a fully-regulated blockchain, operates under existing laws and regulations, making it an ideal candidate for MICA compliance. We have taken several measures to ensure compliance with regulatory requirements, such as obtaining relevant licences and registrations in more than 100 jurisdictions worldwide, including Canada, and Dubai. Furthermore, Scallop has implemented stringent fiat and crypto banking standards to ensure compliance.
Recently, Scallop obtained PSD compliance for its banking services in the EU, further establishing its commitment to compliance. As part of its adherence to regulatory requirements, Scallop ensures compliance with KYC/AML regulations while providing transparency and disclosure requirements. Our commitment to regulatory compliance and transparency makes us a trustworthy and secure blockchain platform for businesses and investors seeking a dependable option in the crypto space.
We are excited that the industry is waking up to what we have always stood for – being regulated and compliant.