Global Standards, Local Challenges
Why Alignment on Crypto Regulation Can’t Wait
TL;DR:
In response to the Financial Stability Board's review of its global regulatory framework for crypto-asset activities, the IOTA Foundation highlights key challenges: fragmented rules, high compliance costs, and innovation outpacing regulation. Without harmonization, firms choose jurisdictions based on risk avoidance, not growth. IOTA urges international coordination to foster innovation, stability, and accessibility.
As the digital asset space evolves at lightning speed, one thing is increasingly clear: regulatory clarity is a prerequisite for innovation, not a roadblock. Yet today’s crypto landscape remains fragmented, creating friction for startups, confusion for users, and blind spots for regulators.
At the IOTA Foundation, we recently submitted our perspective to the Financial Stability Board’s Thematic Peer Review on its global Regulatory Framework for Crypto-asset Activities. Our message is simple: it's time for a more coordinated global approach.
Crypto Rules Are Still a Patchwork
The way governments regulate crypto directly shapes where and how businesses operate. Some jurisdictions are stepping up:
- The EU’s Markets in Crypto-Assets Regulation (MiCAR) offers a comprehensive framework to support market entry.
- Singapore and the UAE are recognized for innovation-friendly oversight.
- The U.S. is showing signs of moving toward clearer, more predictable rules.
But despite these efforts, the global picture remains fragmented. In the EU, second-level regulations can be burdensome, especially for small innovators. Elsewhere, lack of clarity and enforcement-first approaches push companies to jurisdictions not for opportunity but for convenience. This splintered landscape introduces inefficiencies, uncertainty, and uneven access to global markets.
Outdated Rules Are Slowing Crypto Startups
Crypto firms face a confusing patchwork of rules that vary widely in scope and enforcement. Many countries are retro-fitting legacy financial regulations rather than crafting crypto-specific frameworks.
The result? Rules that are either too vague or ill-suited to the technology.
For startups, the cost of compliance – licensing fees, continuous reporting, capital requirements – can be prohibitively high. This risks turning crypto into a playground for institutional players, leaving out the innovation that startups often drive.
In contrast, regulatory frameworks designed with the specifics of digital assets in mind tend to offer more predictability and fairness.
Regulation Is Reacting Too Slowly
The pace of crypto innovation, especially in areas like DeFi, NFTs, and tokenized assets, is outstripping the ability of regulators to respond.
Some regulatory bodies lack the technical expertise or capacity to engage proactively, leading to reactive enforcement instead of constructive engagement. Even when international standards exist (like the FATF’s Travel Rule), inconsistent national interpretations create compliance headaches for global businesses. This highlights the need not just for common principles, but for coordinated implementation.
As Crypto Grows, So Do Systemic Risks
The impact of crypto on financial stability depends on local context: adoption levels, regulatory maturity, and how deeply crypto connects with traditional finance.
In advanced markets, oversight is especially needed for stablecoin reserve transparency and institutional exposure to crypto assets. Enhanced regulation including reliable data and reporting standards, clear guidance and licensing requirements, and strong reserve transparency standards for stablecoins, help manage these vulnerabilities.
In emerging markets, regulators often focus on investor protection and transparency, but as these markets grow, infrastructure integrity and liquidity will become central concerns.
Regions that align early with global standards will be better prepared to manage these transitions. Fragmented regulatory environments, on the other hand, can delay recognition of emerging threats and hamper coordinated responses.
New Practices, New Challenges
Emerging crypto trends like restaking (where assets are used simultaneously across multiple protocols) introduce new opportunities and efficiency into crypto-asset ecosystems, while also increasing interconnected exposures between platforms that regulators and market participants must monitor carefully. Clear regulatory guidance and supervision are essential to ensuring these practices develop sustainably without unintended systemic implications.
At the same time, concentrated activity in a handful of centralized exchanges or custodians can create single points of failure. If they fail to meet high governance and transparency standards, these actors could become single points of failure.
To improve market resilience, we believe decentralized alternatives and self-custody models should be encouraged and supported.
What the Future Could Look Like
The IOTA Foundation strongly believes in the power of regulatory alignment. By coordinating around common standards – licensing, technical interoperability, reporting, and supervision – we can:
- Lower compliance costs
- Promote responsible innovation
- Anticipate emerging threats
- Ensure more equitable access to global markets
We’re committed to working with regulators, innovators, and global institutions to shape a better, smarter framework for digital assets. If you’re a policymaker, technologist, or stakeholder navigating this space, we invite your collaboration.
The IOTA Foundation continues to engage with regulators worldwide to support the development of clear, proportionate regulatory frameworks for digital assets and distributed ledger technology. For more information about our regulatory positions, visit iota-foundation.org/regulatory-affairs. To discuss regulation, contact our team at legal@iota.org.