Topic: We shall separate commercial exchanges from investment exchanges (Read 401 times)

Now that the subject is pretty well explained, I'd like to see some BTC webzine making an article about it.
Come on, it happens some days that there aren't much news. Many bitcoiners need to know about it.

Indeed, banks' ability to create money via loans, not simply lending depositors' funds, resonates with me. Yet, remember, this sits within a governed system, vulnerable to issues like inflation if mishandled. The fractional reserve system, while partly correct in your depiction, lacks depth. True, banks hold a modest portion of total deposits as reserves, but it's more intricate than you suggest.

Regarding CBDCs, their ascent is noteworthy but not a game changer. They won't oust banks or decentralize currencies like Bitcoin. Cryptocurrencies offer an escape route from conventional finance, giving a financial autonomy that inherently centralized CBDCs may not rival.

The topic itself is decisive on its own for the simple fact that it clearly states the services in its terms.
Both commercial exchanges and investment exchanges should be best suited per individual need at the moment and not be a 'who does what best' kinda option in dire situations.
If an idea like this commercial exchange should last, it may be because it is fast, doesn't get congestion, strictly regulated , lower fees and a 24hour service incase I need to perform a transaction in the middle of the night. It is worse with region based service.

I also think an investment exchange serves across borders of both international and local transactions, like a dual purpose system where I can trade, invest, and exchange between currencies/swapping. If it is decentralized, it serves as the main reason for crypto existence, regulators need not be inclusive as it disrupts the truth in what decentralization stands for.
Both exists as it stands and it boils down to per individual decision on what serves best with consideration on safety, ease of use and anonymity.

Yep, banks create money, and some people have tried to make the same thing with so called stable coins, which were supposed to be backed with hard currency (well, fiat currency, because the US dollar is not that hard...) but which were not.

Additionally, some investment exchanges have launched schemes where it is possible to borrow BTC. I would not bet (unless they become properly regulated) that these coins are fully backed with customer deposits.

That's another reason to stick to the simplest swap shops...

everyone must have different opinions about banking, I think, where people switch to dicrypto investment because they are fed up with the government setting a wealth tax that is equal to people who have a lot of wealth with the wealth of small people,

something that will break your mind
banks dont lend out depositors money.. .. are you shocked??

they CREATE money when they set up mortgages. yep thats right new money.
they were limited to only create new value to a ~% of inflation against total value on deposit.

thats where i think you got confused about the fractional reserve part. they dont borrow deposits. they create a X% of new value compared to deposits when they create mortgage loans
..

the other different "fractional reserve system" was something else. it was where when people deposit bank notes to get bank account balance..  those bank notes were to be burned when creating electronic account balance.
but banks then had to have small <10% (of the electronic bank balance) to hand in the form of new bank notes to honour account withdrawals. which is where the banks then bought (at face value) crisp new bank notes. which meant the US Mint(treasury) got money for the fractional reserve
however due to most people now using visa/mastercard for payments instead of cash via ATMS the % of fractional reserve has decreased to nearly nothing

the treasury(us mint) didnt like getting less and less income and are now making a CBDC to replace the need for banks and visa/mastercard where the treasury again takes more control of citizens accounts and takes any fee's or investment plans they can create from CBDC

and now you should be fully uptodate of how the system has and does and will work

If you really want to see how stringent the regulations got, see what was passed after the housing market crash in 2008. You would be surprised at how much banks are able to get away with knowing they have federal regulators that will jump in if they need liquidity. As of March of 2020, U.S. banks literally can loan/invest 100% of depositor funds through the fractional reserve banking system -- they don't need to keep a single cent of client funds on hand. Doesn't sound like they're highly regulated with that type of freedom.

Be specific, what exact regulations are you suggesting? Establishment of an FDIC type insurance program?

The may be good but it seems inappropriate to me and I think the cryptocurrency enthusiasts have to put an end to imitating the idea of the banking sector because already have enough crypto projects claiming to be decentralized where as they still operating in the bank sector way and enslaving the investment.
Enough of that what we have is CEX and DEX no Commercial or Investment exchanges

Juts like banks.

I don't have much money at banks, but I'm happy to know that if one of my banks goes bankrupt, I won't lose my funds, because there's a safety net to protect me. That safety net also includes substantial requirements for banks (well, not substantial enough in my opinion), to prevent bank managers from using customer's money to play Russian roulette with stocks.

All big centralized exchange in the market has this two quality so they fall into the category of be regulated. It would be great if we can separate this two types of exchange just as you said because they are tempting to newbies to us when combined. It's because the options of margin and future trading are available to everyone that's why we're having individuals losing money on this type of trading that they're not familiar with.

Those known commercial exchange should stop allowing  traders without any experience or proof to show that they're professional traders before they start trading using their exchange. If regulations comes then that should be one of the things they should be looking into to protect traders.

regulation is not just about "KYC"
yes with bitcoin defined as a currency then businesses offering services to move it are defined as financial businesses that should be regulated.. but there are many regulations. many policies and many services/features of regulations involved

for instance the difference between a non-custody swapshop. vs a custodial portfolio manager investment firm. is that the second version would need some CONSUMER PROTECTION INSURANCE

yep many dont realise that regulations are "suppose" to be to protect consumers. and so thats exactly what they should be.

EG
an insurance company can be part of a 5 of 6 multisig of an exchanges reserves cold wallet(3 exchange executives, 3 insurance agents). and for a premium insure that value should it get hacked.
with the insurer having control of collateral(exchange reserve decisions) the monthly premium can be quite low as its not simply able to be stolen internally by the portfolio manager, because the insurer has signing control over cold wallet->hotwallet movements which are audited

Cryptocurrency exchanges have many differences between each other, and those with escrow operations, crypto lending and many other activities are receiving special attention in regulation. A number of countries have enacted regulations and laws to monitor the operations of cryptocurrency exchanges in order to protect investors. However, international regulation of cryptocurrency exchanges still needs more time for regulations to be developed and uniformly applied.
There are still risks when trading cryptocurrencies on exchanges, and investors need to do thorough research before making investment decisions. Investing in cryptocurrencies is a risky action and there is no guarantee of success. Therefore, I encourage investors to invest as much money as they can afford to lose if there is an unforeseen price change.

We know that mostly in the field of cryptocurrency there are many users of exchanges that can really be said to be able to withdraw a large amount of money without seeing who made that transaction. And maybe this is one of the reasons why the country's government wants to know about it on exchanges like Kucoin, and Binance.

And the reason investors prefer to use exchanges is that their identity is hidden even if they make large transactions that do not involve the government. In short, traders remain anonymous using exchanges in the crypto business.

Yes, commercial exchanges, or simple swap shops. Investment exchanges or cryptocurrencies portfolio managers.
I wasn't sure what were the most correct words, but I hope everybody understood what I meant now.

There's no doubt regulations are coming, there already there in many countries, but regulators shall make the difference which I made. some easy KYC shall be all that's needed for swap shops, but big companies like Binance shall be much more tightly regulated.

Should we apply the same rules, where 'normal exchanges' resemble commercial banks and high-risk exchanges mirror investment banks, is a reasonable consideration? Are not. Implementing stricter frameworks for high-risk platforms while allowing less regulation for 'regular exchanges' sounds reasonable.

The challenge, however, lies in whether traditional regulatory frameworks can effectively accommodate the unique characteristics and flexibility of cryptocurrencies. Cryptocurrencies offer significant potential for innovation, and simple duplication of existing regulations can stifle their development and impede their ability to transform. So the ultimate goal is to establish a regulatory environment that promotes responsible practices, protects investors, ensures market transparency, and meets the unique qualities of money. electronic.

Every crypto exchanges are going to be regulated, despite them being investment or just exchange platforms. I believe what can happen is that regulators take a milder approach regards the traditional exchanges which don't offer any additional services or products, what really makes sense, considering the currently risks regulators point out on exchanges where you can join staking programs.

If those programs and native tokens are nonexistent, they have no reason to be so harsh on their impositions, unless their main goal is to ruin crypto market and its entrepreneurs. On that case it would become quite obvious, leading to a loss of credibility on regulators' image.

OP if I may ask you this question are you aware that these activities are all financial connected? Do you know that these activities are being monitored by the government for certain reasons? Do you realize that this opinion of yours some how dose not reflect a true exchange policy?

The government I think would not allow such to happen because they would want all financial activities be monitored under their raiders. Exchange that does only conversion of funds to token vice versa are still doing the work of p2p but the difference is that they are being monitored by the government to know the transaction details and for task payment as well likewise the trading aspect of it too. Differentiations in that manner would likely not be feasible because if the tendencies of the swap exchange arises to boycott KYC, the government would react and it would cause more harm than good. So bringing anything contrary to the already existing government standing order would hold no water.

Regulations will become harsher certainly but if you use decentralized exchanges and store your coins in your wallets (non custodial), you will not have risk to lose your coins. In contrast, if you use centralized exchanges, you will have such risk and even bigger risk to lose your coins by harsher regulations that can cause drop in exchange trading volume, income, profit and might trigger collapses of bad centralized exchanges.

FTX is a very painful example of unbelievable terrible collapse of a Tier 1 centralized exchange. I did not think it can happen but after all with more information about their bad operations, their collapse makes sense.

I usually use the first kind of exchanges, to be honest, as I don't need to store money on any centralized services and only transfer it when selling for fiat. There are still some risks here, as you can't be sure the exchange will follow through on their part, so some regulations are needed. But I agree with the op that the regulations should be harsher for those exchanges that hold the money of their clients, might use it for their own purposes (like FTX), and offer more services.
I think the names in the original post are a bit confusing, though, which is probably why many people won't get the difference right. I think I got it right, but only because I have experience with both types of platforms.

Sorry, my mistake. I'll edit my post above.
I'm not afraid, it just makes sense for an individual to separate companies according to the service they provide.


That's my point!



Yes, it depends if you see the problem as an individual, or as a regulator, and what kind of regulations you expect.

To the individual, there's less risk of misbehaving with a simple commercial exchange.
To the regulator, it depends if the goal is to protect consumers, or fighting tax evasion.