Gulf News

Focus on ‘1:1’ to protect your interests

IN 2023, INVESTORS ARE BETTER OFF DEALING WITH TRADE PLATFORMS THAT CAN BACK THE FORMULA

- BY MANOJ NAIR Business Editor

Bitcoin prices are under renewed pressure in the final days of 2022 — but crypto investors in the UAE will be better off focusing on another number until such time these virtual assets regain some of their mojo.

And the number they should be focusing on? 1:1.

If they haven’t already done so over the past few weeks, investors — those with a risk threshold — should specifical­ly opt for crypto exchanges that provide the 1:1 assurance. Which simply means that these exchanges have the ‘proof-of-reserve’ to cover all their investor exposure on a 1:1 basis.

And such exchanges, in principle, will not have the kind of liquidity shortfalls that played havoc with investor funds/deals parked on those platforms. Licensed crypto exchanges in the UAE are rushing to make that point clear with their users.

The FTX fiasco has made sure that ‘proof-of-reserve’ and the 1:1 ratio have become an integral part of the crypto trading universe - over and above where individual prices of the individual assets such as of Bitcoin.

Bitter lessons from FTX

“When handling financial assets of clients, their trust in your company and services are not negotiable,” said Christophe­r Flinos, CEO of HAYVN. “Events like the LUNA implosion in May last and the FTX bankruptcy a month ago have shattered the trust of a lot of investors had in big exchanges.

“Going forward, we think that these unregulate­d exchanges with little to no disclosure will be replaced by regulated, smaller, financial institutio­ns. At HAYVN, we believe trust is establishe­d through different factors — such as strong corporate governance — built upon a strong and effective Board of Directors, regulation­s and experience­d management team with extensive background­s in traditiona­l financial markets.”

Winning back trust

According to the industry, rather than wait for a unified global response on crypto regulation­s, the agenda should be set by individual jurisdicti­ons, which is exactly what the UAE has been pursuing right through this year. Abu Dhabi and Dubai have embedded a regulatory framework, the core of which is ensuring that investor rights are managed even as crypto exchanges and businesses have the leeway to pursue their models.

All within that tightly knit legal framework. And allied to a heightened investor awareness.

This is where crypto exchanges can help with that 1:1 formula. “Responsibl­e crypto exchanges should always ensure to hold client assets 1:1 to settle transactio­ns in real-time,” said Basil Al Askari, founder and CEO of MidChains, a digital currency trading platform. “Client assets should never be used for lending unless service provider is authorised to do so by their regulator and have received consent from clients.

Time crypto rules start thinking traditiona­l “The only way out is for the (crypto) industry to embrace similar standards to traditiona­l finance to bolster consumer trust. The exchanges that have been receiving the most negative attention present themselves as the most stable and secure — but are not legally required to conduct third-party audits and are not directly reporting to a regulator for the bulk of activities.

“Financial regulation­s exist to protect all stakeholde­rs in the market.”

Mining into FTX’s problems

Even prior to the FTX crash, the crypto landscape had been through the wringer through the year.

Terms like ‘crypto winter’ was coming to the fore each time Bitcoin and other cryptocurr­ency prices took another dive.

The crisis of investor confidence worsened with any

crypto trading platform going bust — and which then immediatel­y led others to curtail investors trying to cash out. All of which came to a head with FTX.

Flinos of HAYVN insists the FTX issue should not be clubbed into the wider concerns swirling around the crypto industry.

“FTX’s clients, investors and stakeholde­rs knew they were broadly unregulate­d,” he added. “They knew there was no Board of Directors. No governance. Yet they kept their financial assets with them.

“FTX was not a regulatory problem — it was a corporate governance breach. Regulation­s, we strongly believe, are a critical component for all financial institutio­ns. We support that with a corporate governance regime making it impossible for theft and fraud to occur.

“What we expect to see changing is customers, investors and stakeholde­rs demanding corporate governance and regulation in cryptocurr­ency and taking

It will take much longer than a year to have a global consensus on crypto regulation. Jurisdicti­ons like the UAE will move faster than others.”

Basil Al Askari | CEO of MidChains

Our vision is to ensure that within 2 years, 75% of all ecommerce and PoS payments will have a cryptocurr­ency option available for the customer. To deliver that, HAYVN Pay needs to be involved in more than 100 million merchants globally. We are at the start of that journey, but it is gathering speed.”

Christophe­r Flinos | CEO of HAYVN

business away from those players that do not meet this standard.”

It’s high time then that investors who want to continue on their crypto journeys keep looking out for that 1:1 promise. And make sure their trading platform of choice means what it says.

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