So as I’ve watched my crypto portfolio take a round beating over the past two months, I keep circling back to the same question: what went wrong here? From the Luna/Terra depeg to Celsius going full-scale Joseph Stalin style appropriation of assets to Voyager/3AC falling apart to BTC/ETH hitting lows not seen since 2020, this crypto winter was different. It wasn’t just about a fall in prices, but some of the institutional bedrocks of the space either folded or were exposed as straight-up ponzis or pyramid schemes.
I’ve been holding BTC since 2015 and truly believe crypto is here to stay and is going to change the world–for the better. But we need to do better. YTD something like $2T of wealth invested in crypto went poof, and that hits retail investors hardest (as always). So I’ll ask again–how do we create a crypto investment space that is responsible, credible, and ultimately one people can feel good about putting money in without the rug being pulled out from under them the next week?
One solution that comes to mind is more robust KYC/AML solutions that are linked to common-sense regulatory standards. I’m a huge fan of the autonomy and privacy DeFi as a whole grants us—thats one of the biggest perks of crypto. However strong KYC/AML standards maintain that privacy, but raises the bar of who is qualified to benefit from it. Why should scammers, grifters, drug cartels, and arms smugglers get to tap into the advantages offered by crypto? Ultimately, allowing these people to participate and use markets endangers everyone else. I’m ok with some more restrictive onboarding if it means major exchanges aren’t accessories to transnational fraud of blood money.
One of the biggest providers of KYC/AML solutions on the market is SumSub. I choose this example because stricter KYC/AML is usually associated with longer waiting/sign-up periods. But with these guys its just not true. They work with clients from the start-up level to major exchanges like Binance and Moonpay, meaning the solutions is highly scalable which is important for freedom of access (in order to avoid top-heavy market consolidation in the crypto space that we see in traditional FSIB).
For example Oobit, a smaller crypto payments gateway, recently published a SumSub case study where they report drastically lowering processing time to <1.5min while acceptance rate actually increased. Even for a smaller player like Oobit, stronger KYC/AML not only made their payments service more secure and credible, but ultimately faster and more efficient. I read similar studies for the biggies like Binance, Huobi, Moonpay, and Paybis–same consensus.
SumSub is just one of the leading names in the KYC/AML field. More providers of these services for ecommerce and fintech are beginning to pivot towards crypto and crypto payments as the hot new arena for client acquisition in growth. As governments begin to regulate crypto more closely, more consistent and robust KYC/AML standards are a great place to start; not only do they make the industry safer and more secure for assets today, but over time this will help lend greater legitimacy to the field as a whole. More security means more confidence, more confidence means more investment, and more investment means more capital-inflows and returns. Not a bad deal IMO.