Decentralized Markets and Self-Regulation

67 Pages Posted: 18 Jan 2024 Last revised: 16 Oct 2024

See all articles by Yuliya Guseva

Yuliya Guseva

Rutgers, The State University of New Jersey - Rutgers Law School

Date Written: May 7, 2024

Abstract

Distributed ledger technology, such as blockchains, is changing financial markets by creating a new foundation for transacting with digital assets. Simultaneously, major blockchain-enabled intermediaries—cryptoexchanges—have emerged to trade, broker, and settle transactions with digital assets. U.S. regulators seek to place cryptoexchanges within the ambit of existing regulation and registration requirements for legacy intermediaries. A critical underexplored corollary of this approach is converting cryptoexchanges into legacy self-regulatory organizations (“SROs”) or members of SROs. Put differently, U.S. agencies seek to bring not only conventional regulation but also self-regulation into blockchain-enabled markets. In imposing the traditional models without reform, however, policymakers simultaneously ignore the considerable economic potential of technology-enabled markets and intermediaries and fail to precisely target their risks and transaction costs.

To offer solutions, this Article examines the digital asset market’s structure and microstructure and associated risks. Comparing centralized cryptoexchanges, decentralized cryptoexchanges, and legacy trading venues, this Article agrees with the basic intuition to introduce formal self-regulation and refines possible self-regulatory models. The proposed frameworks aggregate the decentralized knowledge of individual participants in the global technology-enabled market to ensure better coordination and well-informed regulation. Building on market expertise, the proposed SROs would promote regulatory efficiency, improve digital asset trading, reduce the costs of coordination among heterogeneous and globally dispersed participants in blockchain-enabled markets, and nudge them toward comprehensive self-regulatory and technological solutions.

 

Keywords: financial markets, distributed ledger technology, blockchains, securities law, derivatives regulation, SEC, CFTC, self-regulation, SROs, innovation, financial regulation

Suggested Citation

Guseva, Yuliya, Decentralized Markets and Self-Regulation (May 7, 2024). George Washington Law Review, forthcoming 2024, Available at SSRN: https://ssrn.com/abstract=4677538 or http://dx.doi.org/10.2139/ssrn.4677538

Yuliya Guseva (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Law School ( email )

Newark, NJ
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
353
Abstract Views
1,457
Rank
169,630
PlumX Metrics