Regulators across the globe are introducing regulations for the digital asset industry. The EU Parliament has approved the most comprehensive framework for digital assets ever, while Hong Kong and Singapore are competing with Japan to become the digital asset hub of the Asia-Pacific region.

However, the US is experiencing fragmentation and fighting, which puts American businesses at a disadvantage. Regulators must act quickly to prevent bad actors from flourishing and firms from moving to other jurisdictions. The best approach would be to extend basic investor protections of traditional financial markets to include digital assets and thoughtfully craft new rules that fit the technology.

The SEC is considering updating the definition of exchanges to include decentralized exchanges (DEXs), which should be regulated to protect investors. Decentralized finance (DeFi) has the potential to automate and audit regulatory rules, making them more efficient.

The SEC has also taken action against staking programs offered by exchanges, but instead of shutting them down, the SEC could collaborate with them to create new rules and disclosures. The lack of clear guidance for traditional banks to participate in the trillion dollar digital asset industry has inadvertently created significant concentration risk in a handful of small banks.

The best way to mitigate risk in crypto markets is to help established trading markets, banks, and custodians participate and work with regulators to create clear guidance for digital asset products and services.