It also increased the scrutiny of U.S. regulators, though no new laws impacting the industry have been passed.
Now, according to Dr. Yan Zhang, co-founder of Web3-native payment aggregator Pelago, the collapse last month of both Silicon Valley Bank (SVB) and Signature Bank is paradoxically restoring faith in the digital assets industry and its as-of-yet-to-be-realized future potential.
Zhang told PYMNTS CEO Karen Webster in a recent interview that the banking crisis has shown consumers, investors, and businesses around the world that traditional finance “is not better” than crypto anymore.
If FTX put the crypto world on red alert that centralized exchanges can be incredibly risky and come with the threat of mismanagement, then SVB’s collapse has done the same for the traditional finance sector.
“It’s a benefit in the long term, despite some short-term frictions,” Zhang said. “It will encourage people to think more about what the future should look like and how regulation should work.”
But for now, the Pelago co-founder emphasizes that people are seeing FTX and banks both collapse while decentralized payment and FinTech infrastructure remain safe.
“This technology is actually better than the existing infrastructures from a security perspective,” Zhang said. “Merchants should never [have to] worry about their money being stolen.”
“[Everyone] is looking for new locations across the river,” Zhang said. “There’s not [much left] in North America and that’s why they’re looking for options overseas.”
Simultaneously driving this shift, he noted, is the unclarity in U.S. crypto regulations.
“It has put the entire industry into chaos status,” Zhang said. “The instability of the regulation is really harming the industry. From my perspective, no decision is worse than bad decisions. It will take time to debate, but the industry is looking for certainty — these things are allowed, these things are not allowed, these things are temporarily not allowed.”
If there is no certainty, he added, then businesses will naturally start to look to move to different environments where regulations are clearer, and they can more confidently do business.
“It’s turning into a competition between different countries,” Zhang said. “The country that can come out with new regulations and policies that embrace new technology will win these competitions … when the U.S. shut down crypto-friendly Signature Bank and Silvergate Bank, Hong Kong announced they were welcoming [crypto businesses].”
PYMNTS has previously written about how the U.S. has not yet established a comprehensive framework or set of regulations specific to the crypto industry, relying instead on existing securities and commodity laws and frustrating those crypto companies that have so far run afoul of them.
Still, given the pace of innovation, Zhang said he sees a potentially “deregulated” world in the future.
“It’s challenging for regulators because the creation of new regulatory policies will always be slower than the speed of innovation. You can see this now with the progress of AI and people panicking,” he said.
That’s why, Zhang emphasized, that it is important for regulatory decisions to be made at the outset.
“Even a bad decision, a bad regulation, it is better than no regulations … in the future we can always revisit the decision and work on the framework. [The crypto] industry can live with any regulation, as long as it’s clear,” he said.
He said the widening gap between the speed of innovation and the time it takes for regulatory policy to catch up is “not good for mass adoption of new technologies,” going so far as to call it “pure chaos” — but notes that it does provide an opportunity for innovation.
“In the end,” he said, “the technology that serves [the needs of] people best is going to be the one that excels.”
For the Pelago co-founder, that technology is Web3-native DeFi payment protocols.
“It’s a complicated world,” Zhang said, and businesses, merchants, and consumers are looking for certainty.