The "Three Painful Feet" of Digital Asset Trading

A few days ago, Robinhood, an online trading platform for retail securities that has washed Wall Street and is highly sought after by young Americans, decided to remove a series of encrypted assets from its platform, including Solana, Polygon (MATIC) and Cardano, etc. The U.S. Securities and Exchange Commission (SEC) has recently banned more than 50 encrypted digital assets from circulation and trading on U.S. platforms. The total market value of these digital assets on the prohibited list exceeds 100 billion US dollars. Before that, the US Securities Regulatory Commission also filed judicial proceedings against Binance and “Coinbase”. Undoubtedly, these incidents have seriously impacted the digital asset trading market.

From inclusive regulation to gray regulation, from commodity transactions to securities transactions, digital asset transactions are strongly attracted to those regulatory and compliance magnets around the world with low legal clarity like iron fans, and they call it "friendly" Type regulation”, and once the regulatory authorities are no longer “friendly”, digital asset transactions start to fall like degaussed slag iron. The problem is that digital asset trading has three painful legs that make it never really "land"...how can it stand and walk independently?

**The first sore foot - the legal attributes of digital assets are vacant, which determines the so-called "original sin" of digital asset issuance. **

Can anyone develop and issue digital assets without legal recognition and regulatory intervention? It is true that, as far as exploitation is concerned, there is no law expressly prohibiting it, nor is it expressly supported by law. If there is no legal restriction, how to set the norms for the release after development? If there is no regulation and it is all voluntary by the parties involved, it will be difficult to distinguish between the issuance link and the transaction link. Is the digital asset transaction as a commodity transaction or a securities transaction? In reality, this is an issue that has to be confronted directly by the regulatory authorities.

Just as the development and issuance of Bitcoin have not undergone any legal procedures, the problem naturally extends to the transaction link. In the beginning, the various regulatory authorities were often not on the stand and were reluctant to intervene directly. With the development, the regulatory authorities often make gray choices on this, and here, various digital assets flock to it, and the issuance and trading expand rapidly, which is spectacular. Frankly speaking, inclusive and friendly regulation are all gray regulation, which has promoted the global digital asset trading market to advance all the way. In addition, a few years ago, due to the so-called flood of dollars caused by the loose monetary policy, a large number of investors supported the huge digital asset transaction The size of the market and the transaction price that shocked the market. In the fall and winter of last year, the Federal Reserve and the International Monetary Fund continued to warn against digital asset transactions, believing that it would impact financial stability and jeopardize financial security.

**The problem is that, from the source, the legal attributes of digital financial assets themselves have never been clarified, and the legislative authorities are even unwilling to face them directly, and they simply do nothing about it. Everything is left to the administrative judicial or regulatory authorities. **Historical perspective, the hysteresis of law is often a common fact. In many cases, it is not based on the so-called legal rationality to make presumptions. It is often the induction of empirical facts or the accumulation of problems to the turning point, that all laws breakthrough or innovation. Looking realistically, digital assets cannot be legally properly minored, and their transactions will become a hot potato, falling into the hands of regulatory authorities. In a series of friendly regulation, inclusive regulation, and even gray regulation After that, it is inevitable to deal with it.

After a series of fraudulent cases, the U.S. authorities began to implement strong regulatory measures to strictly prohibit their transactions, and all companies that own these digital assets have raised objections to the charges of the SEC, and expressed the hope that the legal clarity of U.S. digital assets can be improved. All parties do not make any judgments on the legal attributes of digital assets themselves, bypassing their "original sin". Then, can digital assets be traded as securities assets?

**Second sore foot - Insufficient regulatory compliance guidelines and systemic deficiencies. **

Inclusive supervision and even gray supervision, in fact, the so-called "open one eye and close one eye" supervision is "unsound". However, if there are comprehensive compliance guidelines for substantive follow-up, the compliance system for digital asset transactions can still be stepped up and gradually mature and developed. That is to say, in order to be able to handle inclusive supervision or gray supervision without any accidents, we need to do our best and see what we see. **The problem lies in this-**The so-called inclusive regulation and friendly regulation are in essence gray regulation, that is, they do not proactively improve regulatory compliance guidelines, and they have neither the will nor the ability to deal with legislation The lack of substantial law enforcement. From a technical point of view, whether the existing legal system of commodity trading or securities trading is suitable for digital asset trading itself is a problem. To improve compliance in this direction, there is a lack of sufficient resources and capabilities. Therefore, everything can only wait for the continuous outbreak of problems and accumulate to a certain extent before making "remedies after the fact".

If there is a lack of supervision and the compliance guidance is not timely and effective, then digital asset trading is like a leaking ship going out to sea, breaking into water, and then, serious draft, or even shipwreck, shipwreck becomes a high probability event, or even inevitable. ** Among the compliance guidelines, there are three important ones: operating procedures, customer protection, and capital regulations. **

First of all, as far as the operating procedures are concerned, the regulatory authorities do not have the ability and willingness to provide compliance guidance or guidance, that is to say, in fact, there are situations where supervision is not in place or supervision is vacant. Strictly speaking, the supervision of digital asset transactions was even the so-called qualification supervision at the beginning, which did not enter into the operating procedures at all, or there was even serious transaction opacity. Secondly, as far as customer protection is concerned, regulatory authorities have failed to give effective compliance guidelines. The existing compliance guidelines for commodity transactions or securities transactions cannot fully cover the interests of trading customers. The platform also fails to take corresponding measures sufficiently and actively, or even purposefully exploits regulatory loopholes, at least it lacks the motivation to increase transaction costs and reduce efficiency. As a result, the level of potential losses or risks of customers is inevitably high and continues to accumulate... Third, in the trading procedures of digital assets, bank funds and digital assets are under different account arrangements, and there are "natural" gaps in the connection (Gap ), and the so-called trading capital regulations that constitute transaction instructions, entrustment capabilities, account security, etc. are lacking.

Insufficient regulatory compliance guidance, in fact, is to embody gray regulation as opaque regulation. As a result, everything will be fine if there is no accident, but once an accident occurs, it will be a disaster, and it is often banned. The so-called friendly supervision "turned face" into unfriendly supervision, just like a revolving door. The question is, what kind of disaster? If the situation only occurs in the existing field of digital asset transactions and the external influence is not large, then gray supervision can still continue.

The problem is that if the banks that are closely related to digital asset transactions are out of the situation, then the regulatory authorities must intervene strongly. This fact constitutes the third painful foot of digital asset trading...

**The third sore foot - bank fund entrustment and digital asset entrustment. **

Digital asset transactions are often 24-hour seamless transactions, and trading customers are all over the world. The frequency and complexity of bank funds in and out and the transfer of digital assets traded exceeds the existing various securities transactions. Therefore, entrustment arrangements such as "escrow" and "holding on behalf" must also be made technically, but precisely because of entrusted holding, escrow, there are time lags or operating procedures in the issuance, acceptance and execution of transaction orders and fund transfer orders A similar situation exists in the extraction of digital assets. This determines that the overall perfection, security, transparency, and reciprocity of responsibilities of the digital asset trading system are difficult to overcome.

This is a risk exposure for banks. However, banking institutions are often able to use the existing legal system to exempt themselves from legal liability, but the ultimate loss of customers is often unavoidable. On the other hand, it also effectively creates regulatory exposure. However, regulatory authorities are often able to skillfully use existing laws and regulations to exempt themselves from regulatory responsibilities, which highlights the responsibility of digital asset trading platforms, and in turn, requires regulatory authorities to strictly pursue them. The problem is that compared with the maturity and perfection of existing securities transactions or even commodity transactions, digital asset transactions often have various situations or problems, and they often lack sufficient willingness to improve compliance operations, or there are even some intentional evasions and malicious evasions , until fraud and robbery...

**Strengthening the supervision of existing banks and the asset holding and transfer responsibilities of digital trading platforms will help improve and enhance the security of digital asset transactions. ****This requires the formation and coordination of regulatory forces, especially the comprehensive improvement of the digital regulatory capabilities of relevant authorities, which also means an invisible increase in digital asset transaction costs. More importantly, it exposes the potential risks of banks participating in digital asset transactions, increases their risk control costs, and reduces their profit margins, which is also what banking institutions are unwilling to get involved in. Banking institutions often choose to "effectively" legally Avoid related risks and make gray choices. ** The bank has sufficient reasons to exempt it from its responsibility, and even if the digital asset trading platform bears the relevant responsibility, the loss of customers is irreparable, and will eventually affect the banking system.

In short, the third painful foot is the most painful. It is difficult to land on the ground. Therefore, only when major problems occur, will the digital asset trading platform be held accountable.

It is not impossible to completely correct or even repair the three painful feet of digital asset trading. The problem is that it will be handled in full accordance with the existing securities trading supervision, which will undoubtedly make the digital asset trading industry feel suffocated and open up a new regulatory model. Even the system, in fact, has no synergy, resources, and willingness to speak of, so that all parties turn a blind eye, make gray choices, indulge in opportunities, and miss or squander all kinds of opportunities in the past.

At present, the digital asset transaction fraud case has broken the record in the history of financial fraud in the United States. The economy and society cannot bear it again and again and sit idly by. The relevant authorities cannot shirk their responsibility for this and must do something. The three painful feet of digital asset trading are constantly being cut, and the reasoning is still chaotic. The US Securities Regulatory Commission banned more than 50 kinds of digital assets from trading on US platforms, and only cut off some digital asset transactions. …