YEREVAN (CoinChapter.com) — Caitlin Long, the founder, and CEO of Avanti Bank posted a counterargument thread on Twitter to a recently published New York Times article. The article claimed that cryptocurrency and DeFi are “disrupting the banking industry” so fast that “regulators are far behind.”
Long said that the issue isn’t “black and white,” and the anti-crypto forces are trying to paint the whole crypto industry with a broad brush.
Long said that the NYT “Crypto’s Rapid Move Into Banking Elicits Alarm in Washington” article deserves a thoughtful reply and pointed out some inaccuracies in it. For example, “it ignores the fact that regulatory-compliant firms exist,” she said.
The article used BlockFi as an example of the DeFi industry, “creating an alternative banking system.” It explained that to state and federal regulators, the entry of crypto into banking is cause for alarm, and the regulators can’t catch up with them.
As NYT said, “there are potential dangers” in this industry, and high-stakes speculation leaves investors and financial markets vulnerable. Long stated that there are already fully regulated crypto banks. One of them is Avanti, her bank located in Wyoming.
She said regulated banks could provide custody services for assets other than dollars but only take deposits in fiat money. Finally, she corrected the article for it “mischaracterized” Wyoming’s special bank charter for not allowing crypto deposits.
Long pointed out that many crypto intermediaries are bringing the “bad behaviors “from traditional finance into cryptocurrency. Things like “crazy leverage” without requiring the capital buffer or “information asymmetry.”
She believes crypto intermediaries should disclose information about their reserves or capital buffers. In most DeFi platforms, “the information symmetry” is visible, and Long thinks that’s one of DeFi’s best attributes.
“Regarding disclosure & transparency, DeFi platforms do a far better job than either centralized crypto intermediaries or traditional financial institutions do.”
Long has concerns about leveraging in the crypto market. She already said that if platforms show their customers the loss probabilities when leveraging, fewer customers may use them.
She agrees with the article about customers’ potential liquidation even with a small move in a cryptocurrency price. The regulated U.S. platforms offer around 2.5x leverage while unregulated ones offer almost ten times more, which, in Long’s opinion, can be the reason why “regulators fret.”
Long said many incumbent banks are getting into the crypto business, the same companies that the NYT article criticizes. She mentioned that the critics tarring the entire crypto industry with the same negative brush are also defending these incumbent banks.
Crypto vs regulators
Long pointed out that there are reasons for being concerned about some incumbent banks that got the regulatory approval. These banks settle their books only once a day while crypto transactions “settle in minutes with irreversibility.” As she said, the regulated banks “need to be in a straightjacket,” this is the only safe way for integrating the crypto and traditional systems.
In his keynote in June, Nick Szabo, the known computer scientist recognized for his research in digital contracts and digital currency, said,
“Liquid markets are helpful but not necessary.” Long mentioned him and said, “Yep, liquid markets aren’t necessary–but A market is!”
As Long interpreted Szab’s point, the crypto industry needs a market but not a liquid one. Thus, she argued the crypto industry needs only fiat on-ramps that have a “centralized intermediary.”
NYT reported that Elizabeth Warren, a U.S. Senator, believes banks should get banned from holding cash deposits backing up stablecoins. But Long opposed her. She noted that even if the stablecoin market gets banned from accessing the U.S. dollar, it has almost $117 billion in it.
The majority of that money is circulating offshore. Therefore, a banking ban can’t stop them from spreading. That can only stop that money from coming back onshore.
Long explained how everyone should be prepared for more pushbacks from incumbent banks as “some of us (including AvantiBT) get closer to regulatory approval by submitting to the very same rules as traditional banks.”