Binance exec: Crypto regulation could ‘stifle’ industry

Changpeng Zhao, co-founder and CEO, Binance, during day one of Web Summit 2022 at the Altice Arena in Lisbon, Portugal. Ben McShane/Sportsfile for Web Summit via Getty Images

The biggest risk to cryptocurrencies isn’t another exchange implosion or multi-million dollar hack, it’s regulation. At least that’s what Patrick Hillmann, head of strategy at the world’s largest crypto exchange Binance, said on Monday.

Hillmann argued that US crypto regulations are becoming increasingly strict and misguided, which could cause some “real market volatility” or even “suffocate” the industry.

“The United States has always been a place that has really fostered great innovation,” he said Insider. “Unfortunately, I think [what] we see now going to have a real price [to investors] overtime.”

US regulators have stepped up enforcement of crypto regulations in the wake of last year’s collapse of FTX, once the world’s second largest crypto exchange.

In January, the Federal Reserve Board, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency issued a joint statement warning banks about the risk of exposure to “crypto-asset related activities.” And in the weeks since, the Securities and Exchange Commission (SEC) has handed out seven-figure fines to celebrities who promoted cryptocurrencies and clamped down on “staking” features — where users earn rewards for holding certain cryptocurrencies. Crypto exchange Kraken was fined $30 million for inappropriate disclosures related to its betting feature earlier this month.

Binance’s Hillmann is particularly concerned about increasing regulations against exchange tokens – which are used to facilitate transactions on crypto exchanges – and stablecoins – whose value is tied to an external asset such as the dollar or gold.

Following the collapse of algorithmic stablecoin TerraUSD last year, regulators have begun looking at popular stablecoins that are meant to maintain a one-to-one link to an external asset. But Hillmann said overbearing regulations could lead to the loss of what he called stablecoin “safeguards” for crypto investors. Stablecoins are usually seen as a safe haven by crypto investors due to their low volatility.

“When you take that away from the users at a time like this, that safety net disappears,” Hilmann argued. “At the same time, we see a pressure campaign on American banks not to serve crypto either. Don’t just do [investors] do not have the option of moving their money to a safe [place]nor are they able to withdraw it from the exchanges easily.”

Hillmann’s comments come after the New York Department of Financial Services forced blockchain platform Paxos to stop minting Binance’s stablecoin (BUSD) earlier this month, citing “unresolved issues related to Paxos’ oversight of its relationship with Binance.” On February 12 The Wall Street Journal also reported that the SEC plans to sue Paxos for violating investor protection laws in relation to BUSD. Stablecoins’ market capitalization has fallen from $16.1 billion to just over $12 billion in the weeks since, according to data from Coinmarketcap.com.

While enforcement of cryptocurrency regulations has steadily increased over the past year, the SEC’s decision regarding Paxos and BUSD is the first lawsuit targeting a stablecoin and represents a major step up from regulators, who some argue are intended to send crypto back to the “fringes of finance.” “

In January, Binance admitted management issues with its stablecoin offerings after several outlets found irregularities in the security used to back these tokens. But the company said last week it was nearing a settlement with US regulators to “make amends” and pay fines for its many legal troubles in recent years.