IOTA Foundation Advocates for Global Crypto Regulatory Coordination

The IOTA Foundation has responded to a review by the Financial Stability Board (FSB) concerning the global regulatory framework for crypto-asset activities. The Foundation underscores the pressing need for a more unified approach to regulation, pointing out that fragmented rules and high compliance costs are major hurdles for the industry, according to the IOTA Blog.

The Need for Harmonization

As the digital asset ecosystem rapidly evolves, the IOTA Foundation argues that regulatory clarity is essential for fostering innovation. The current patchwork of regulations creates confusion among startups, users, and regulators, stifling growth. Without harmonization, businesses may choose jurisdictions based on risk avoidance rather than growth potential. IOTA advocates for international coordination to enhance innovation, stability, and market accessibility.

Fragmented Regulatory Landscape

Regulatory frameworks across the globe remain inconsistent. The European Union's Markets in Crypto-Assets Regulation (MiCAR) provides a comprehensive framework, while jurisdictions like Singapore and the UAE are noted for their innovation-friendly oversight. However, the global regulatory landscape remains fragmented, leading to inefficiencies and uncertainty. This inconsistency forces companies to select jurisdictions for convenience rather than opportunity, disrupting market access and growth.

Challenges for Crypto Startups

Crypto firms face a maze of outdated rules, often adapted from traditional financial regulations rather than tailored to digital assets. This results in regulations that are either vague or unsuitable, with compliance costs—such as licensing fees and reporting requirements—being prohibitively high for startups. This environment risks marginalizing innovative startups in favor of institutional players.

Regulatory Response to Innovation

The rapid pace of innovation in areas like decentralized finance (DeFi), non-fungible tokens (NFTs), and tokenized assets often outstrips the ability of regulators to respond effectively. Many regulatory bodies lack the technical expertise to engage proactively, leading to reactive enforcement measures. Even when international standards exist, inconsistent national interpretations create compliance challenges for businesses operating globally.

Systemic Risks and Regulatory Needs

The impact of crypto on financial stability varies by region, influenced by factors such as adoption levels and regulatory maturity. In advanced markets, oversight is needed for stablecoin reserve transparency and institutional exposure to crypto assets. Emerging markets often focus on investor protection and transparency, but as these markets grow, concerns about infrastructure integrity and liquidity will become more prominent.

Emerging Practices and Challenges

New trends such as restaking, where assets are used across multiple protocols, introduce both opportunities and challenges, increasing interconnected exposures that require careful monitoring. Concentrated activity in centralized exchanges or custodians can create single points of failure, emphasizing the need for high governance and transparency standards. Encouraging decentralized alternatives and self-custody models can enhance market resilience.

The Path Forward

The IOTA Foundation strongly supports regulatory alignment, advocating for common standards in licensing, technical interoperability, reporting, and supervision. Such coordination can lower compliance costs, promote responsible innovation, anticipate emerging threats, and ensure equitable market access. The Foundation is committed to collaborating with regulators, innovators, and global institutions to develop a robust framework for digital assets.