Sam Bankman-Fried: Crypto More Immune to 2008-like Crisis Than Banks

For the longest time, financial regulators have criticized cryptocurrencies and stablecoins for their use in facilitating illegal financial activities and their extreme volatility levels, among other things.

Today, during a hearing before Congress, dubbed “Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States”, some of the top crypto executives discussed several key aspects of the crypto industry.

In response to the issue of stablecoins being used for illicit transactions, the CEO of FTX, Sam Bankman-Fried stated that crypto firms impose a high level of user verification processes that is not obtainable with fiat. 

Bankman-Fried noted that the cryptocurrency industry has set the standard for strict user verification procedures, including the Know Your Customer (KYC) and Anti Money Laundering (AML) compliance.

“We, as most market participants, have advanced payment techniques to prevent the activities of bad actors. All legitimate stablecoins issuers conduct KYC and AML for issuances and redemption. Compare that to physical cash, where no transactions have KYC/AML and it is safe to say that the digital assets industry has set a standard on that front,” he said.

Crypto Firms More Equipped to Mitigate Volatility Than Traditional Systems 

Raising the issue of volatility, Congressman Alexander Green expressed the concerns of regulators about cryptocurrencies becoming a bubble, pointing out a lack of transparency and adequate financial disclosure in the crypto space.

According to Congressman Green, the market is currently showing several of the factors that had led up to the global financial crisis earlier in March, which saw several crypto coins lose more than half of their values.

Commenting on the issue, Bankman-Fried noted that the crypto industry is more equipped to mitigate volatility than any traditional financial institution.

He said,

“One of the really innovative products of cryptocurrencies is that we have 24/7 risk monitoring engines. We do not have overnight risks or weekend risks or holiday risks in the same way traditional assets do, which allow risk monitoring in real-time to help mitigate volatility. We’ve been operating for a number of years with billions of dollars of open interests, we’ve never had customer losses or clawbacks.”

He also pointed out that the operations of crypto firms, like FTX and other crypto exchanges, are fully transparent, including details of liquidations, open interests, and more.

“We store collateral from users in a way that is not available in the traditional financial systems. In connection to the 2008 financial crisis, we had many non-reported financial transactions that were rehypothecated and used for further leverage. No one knew what risks were involved until everything collapsed.”

The hearing is still ongoing at the time of publishing this report, with industry leaders from Coinbase, Paxos, Bitfury, Circle, and Stella, representing the crypto industry in front of US lawmakers.

   
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