BoE speculates FTT token fire sale may have sparked FTX collapse, calls for widespread regulation

John Cunliffe, Deputy Governor for Financial Stability, Bank of England (BoE) It was published In his November 21st speech, he said that the collapse of FTX was caused by the run of FTX tokens and that the crypto space needed to be regulated to provide stability.

Collapse of FTX and execution of FTT

Talking about the recent FTX collapse, Cunliffe said that while it’s impossible to fully understand what happened, there are some signs of trouble that financial instruments regulators have been able to recognize. I was.

Cunliffe said a financial institution’s corporate structure, governance, internal controls, lending, brokerage, and settlement activities are critical to its health. FTX, on the other hand, fell short in every aspect.

According to Cunliffe, FTX operated as a “conglomerate,” with multiple products and features grouped together within one company. In healthy traditional financial institutions, these functions and products were controlled by various departments.

FTX also failed to properly account for the high volatility of unbacked crypto assets and calculated its services accordingly, leading to its collapse. Mr Cunliffe said:

“Certainly, there are indications that in the case of FTX, it may have been the FTT scramble that triggered the collapse.”

need regulation

Regarding the (Terra) and FTX collapse, Cunliffe said:

“Last year’s experience shows that it’s not a stable ecosystem.”

He argued that this instability was due to the unbacked underpinnings of cryptocurrencies and the completely unregulated nature of the system. We do not make such comments about the nature of fiat currency.

According to Canlife, the only way to stabilize the ecosystem is to keep all crypto entities and activities within regulation. He argued that the crypto space should be regulated for three reasons.

The first direction is to promote consumer and investor protection. Cunliff said it doesn’t matter if he thinks it’s wise to invest in “the highly speculative assets that represent the bulk of activity in the crypto space”, consumers should be transparent, fair and robust. He said he should be able to invest in the market.

Cunliff’s second mandate was to create a stable financial environment. He argued that communities should not wait until it is too late (as is the case with FTX), but rather act proactively to prevent such disasters before they occur.

Finally, Cunliffe’s third reason for regulating the cryptospace was to encourage innovation. He argued that innovation may start in unregulated fields, but only be developed and adopted on a large scale within the framework.

He said:

“By using technological advances to keep innovative approaches on par with existing approaches, we ensure that the benefits of new technologies and new business models really flow from innovation, not from regulatory arbitrage.” can do.”