For more than a decade, the crypto ecosystem has developed a growing number of financial products and operations. Although the system was originally imagined by its creators as totally decentralized and anonymous, the enormous interest it aroused around the planet led to the creation of exchanges that initially facilitated both the buying and selling, as well as the custody of these assets.
Although there are decentralized exchanges (Uniswap is perhaps the main example), and investors can hold or transfer their cryptocurrencies to their own anonymous wallets, current reality shows that most of the operations are carried out globally through centralized markets that guard these assets and operate in dozens of countries (Binance, Coinbase, Kraken can be mentioned as some of its main exponents).
In these markets, both institutional and retail investors buy and sell crypto assets using the so-called “fiat” currencies issued by central banks (dollars, euros, pesos, etc.), and can also exchange different cryptocurrencies with each other.
Most of the platforms not only offer their clients the possibility of trading and custody but also contemplate a wide range of financial operations, allowing for example to obtain returns on the holdings of these crypto assets.
Cryptomarkets under the Microscope
The universe of products that are traded in these markets can include both traditional cryptocurrencies (such as Bitcoin or ether), as well as so-called stablecoins linked to some type of asset such as the US dollar (such as USDC or Dai).
Other digital representations of assets called tokens are also traded, which can be fungible or non-fungible (NFT) mostly based on the so-called smart contracts, these platforms are also used to finance new projects through the so-called ICOs (initial coin offerings).
Given the novelty of the creation and operation of these crypto markets, different legal, regulatory, financial, and operational issues arise that are not clear and can be detrimental to unsuspecting investors.
To mention specifically one of the controversial edges of these centralized markets is the conformation of the prices of the assets that are traded.
Some of these platforms face potential conflicts of interest when they operate simultaneously as markets and intermediaries (market makers). Not necessarily the operations carried out by clients in an Exchange are transferred and specified at that price in the centralized book (Blockchain) corresponding to that cryptoactive.
The same crypto-asset can be traded at the same time and for a similar amount in different markets with different prices, sometimes with a significant width in the margins of said quotes. Just as an example, in Argentina there are online sites (e.g. cryptosaurio.com) where these price differentials between exchanges can be observed.
In the End… Sword of Damocles
Blockchain technology and the crypto ecosystem are a reality that will surely continue to develop in different fields and in a disorderly manner.
However, beyond the normative chaos that some controversial cases show (to the hubbub of lawyers and legal studies), the lack of a more or less clear regulatory framework constitutes a sword of Damocles, both for those who want to carry out the crypto business legitimately and for regulators who fail to protect less experienced investors, who participate in these markets without fully understanding the risks involved.
By Audy Castaneda