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U.S. Securities and Exchange Commission (SEC) chair Gary Gensler says the way crypto exchanges are structured could work to the disadvantage of users.
In a new Bloomberg report, Gensler notes that, unlike traditional finance, cryptocurrency exchanges have not set up clear distinctions between various aspects of their service.
Since exchanges are responsible for the custody of assets, transacting on both sides of a marketplace as well as providing the venue for traders, Gensler says he’s concerned such “commingling” could be harmful to customers.
“Crypto’s got a lot of those challenges – of platforms trading ahead of their customers.
In fact, they’re trading against their customers often because they’re market-marking against their customers.”
The SEC chair also takes aim at so-called stablecoins, which aim to peg to the US dollar 1-for-1, by observing that the three largest stablecoins are all owned by crypto exchanges – namely Bitfinex’s Tether (USDT), Coinbase’s US Dollar Coin (USDC), and Binance’s Binance Coin (BUSD).
Gensler says he’s concerned the exchanges might be enabling circumvention of anti-money laundering (AML) and know-your-customer (KYC) rules in the process.
“I don’t think that’s a coincidence. Each one of the three big ones were founded by the trading platforms to facilitate trading on those platforms and potentially avoid AML and KYC.”
Yesterday, the Federal Reserve also weighed in on the risks associated with stablecoins during a lengthy and wide-ranging report about financial stability. The Fed mentions the possibility of central bank digital currencies (CBDCs) fulfilling the role of stablecoins but with government rules and secure backing.