Financial regulators and investor (over)protection

What is investor protection?

In a centralized world it means checking if the companies providing financial services and those behind a financial product are legit, which would decrease (but not eliminate) the risk of a scam. This is the job of regulators empowered to say yes or no to any financial project.

In a decentralized world it means auditing a DeFi/cryptocurrency protocol to identify and fix any possible vulnerabilities. This is the job of specialized and highly skilled tech companies, and the regulators are quite useless here until they acquire similar skills.

The power, however, is a difficult thing to give up.

A recent report by the European Securities and Markets Authority, while calling cryptocurrencies a “trending financial innovation”, highlighted that they raise investor protection issues because of their volatility and “operating outside of the EU regulatory framework”.

This looks rather patronising to us.

Volatility isn’t bad in itself: you gain if you took the right position, you lose if you took the wrong, and you don’t care if you’re investing long-term.

Decentralization makes financial products that were previously reserved to an elite circle of financial specialists accessible to everyone, and everyone can gain or lose according to their abilities.

Crypto investors can see the volatility, and they still wish to get into it at their risks and perils – because they have the right and because they can.

Financial regulators treating people like ignorant children is at best over-protection, and at worst – discrimination. Maybe it’s time to let go ?..