Crypto exchanges facilitate self-sufficient and decentralized trading of digital assets outside the traditional financial markets. Today, crypto space has become a significant force toward the push to change the global financial markets. This is all thanks to these trading platforms. Exchanges have provided reliable 24-hour access to the digital market. This has allowed traders from different life classes to invest in digital assets. Professional crypto traders can access historical market data, and through using trading tools. Using these, they can make critical decisions on trades and investments.
Exchanges are evolving as the cryptocurrency space is witnessing mess adoption. Binance is one of the first established exchanges. It is a centralized exchange allowing traders to swap between different tokens. Here all funds are stored in wallets on the trading platform. The invention and adoption of blockchain technology have made it possible to sell or buy crypto assets right from their wallets through decentralized exchanges (DEX). Platforms like UniSwap allow buyers and sellers to swap between tokens without depositing their support on a central wallet.
The Regulators Turn their Eye On Crypto Exchanges
There is a lot of pressure for firms handling digital assets to comply with Anti-Money Laundering laws. This is due to the increasing recognition of these crypto businesses by regulators. Exchanges are working hard to ensure that they improve their system to comply with the AML. This is important for these businesses as it may boost their revenue as they try to gain trust from the regulators and new clients.
In the US, the Federal Reserve and the Treasury, through its powerful Financial Crimes Enforcement Agency(FinCEN), are mounting pressure on digital assets providers to comply with the International anti-money laundering proposals famously known as the “Travel Rule.” The new regulation recommendations are currently under public opinion court as the Treasury asks the public to comment.
Elsewhere in the EU, the European Commission has several crypto regulatory proposals. These guidelines aim at strengthening investor confidence as they clean the markets from criminals who may want to take advantage of unregulated crypto markets through the MICA draft. The commission recommends that crypto exchanges doing business within the EU should obtain regulatory authorization. Through this, exchanges were subjected to strict prudential and conduct rules. The proposal incorporates guidelines in matters to do with the admission of cryptocurrency trading tools, recommending white papers with specific details.
Big crypto trading platforms are in a rush to obtain licenses from regulators across the globe. Doing this helps these platforms to compete with the traditional financial institutions by ensuring credibility to their clientele. Kraken, an essential player in cryptocurrency trading, is the latest exchange protocol to seek a banking license from the state of Wyoming. This has enabled the firm to provide custody, banking, and financial services to crypto enthusiasts through Kraken Financial.
What’s Next for Exchanges?
For the exchanges to flourish in the gaming years, the industry needs to realize investor protection measures through investments in security. The year 2020 has witnessed popular exchange platforms being penetrated by black hat hackers leading to huge losses. In February, hackers stole23210 ETH, 6929 BTC, and other tokens from an Italian exchange. Following several attacks on the exchange protocol, industry players have gone the extra mile in improving their platforms.
Crypto exchange will attract substantial institutional investors. Complying with the AML guidelines and rules, the platforms are set to gain credibility, attracting investors, mostly in the traditional markets. There is already a growing interest in institutional investments in the world. Institutions are now keen to incorporate digital assets in their portfolio. One example is the ING, a European establishment, which is keen on partnering with crypto asset firms on digital custody and security solutions within the FCA sandbox by offering a secure holding and transfer of crypto assets.