In the last two months, seismic macro events across both the crypto and traditional markets have brought coins such as Bitcoin to $20k, wiping off half of its value. One key factor was the collapse of the Terra LUNA project. This then had knock-on consequences to other actors who were heavily exposed to Luna, such as Celcius and Three Arrows Capital.
Huong Hauduc, General Counsel at BEQUANT, the digital asset prime brokerage and exchange argues that the only way crypto can avoid these kinds of mass fallouts again is through greater regulation.
Huong commented: “Companies exposed to the LUNA project were wrapped up in the appeal of the potential upside and either were negligent or failed to undertake proper due diligence to protect themselves. This is why regulation is so important to prevent a crash like this happening again.”
“The lack of regulatory oversight meant that companies faced serious liquidity problems by undertaking unrestrained and overleveraged financial engineering while deliberately concealing risks. There was no stopping firms that took on excessive risks by reusing collateral for several loans or entered into complex leverage structures. This left retail customers in the dark and losing out.”
“A regulated entity, such as BEQUANT Pro, has to perform more in-depth due diligence when onboarding new clients or offering new products or services. It also has to ensure that its capital reserves and liquidity position are sufficient to cover potential risk exposures and all important business decisions are carefully assessed from a compliance, risk and financial perspective. This is both to appease the regulators and ensure business continuity.”
“Regulators are primarily concerned about prudent risk management, both to consumers, clients and the business itself. Therefore, being a regulated entity ensures that the business risks are properly identified, managed, monitored and reported on an ongoing basis. This should stop issues facing some “unregulated banks or hedge funds” at the moment where their exposure to a particular company or project was uncontrolled and much higher than initially thought.”
About the author
Huong Hauduc is General Counsel at BEQUANT. She has over 20 years of experience in legal and regulatory matters. You can connect with Huong on LinkedIn here and follow the BEQUANT page here.