The cryptocurrency industry is witnessing a sweeping transformation in its approach to regulatory compliance, according to James Smith, co-founder of Elliptic, a firm specializing in crypto compliance. Speaking at the Token2049 event, Smith highlighted the remarkable evolution of the industry from its laissez-faire origins to a landscape increasingly dominated by stringent compliance measures.
A Paradigm Shift in Compliance
In the nascent days of cryptocurrency, compliance was often an afterthought. Few companies took it seriously, with notable exceptions like Coinbase, which was among Elliptic’s earliest clients. “Coinbase understood from the outset the importance of building their business with compliance in mind,” remarked Smith, underscoring how the platform set a precedent for others to follow. Yet, for many, regulatory compliance was not a front-burner issue until recently.
This shift has been catalyzed by the proactive stance of regulators, particularly those in New York, and the growing involvement of traditional financial heavyweights. With firms like Fidelity and DBS Bank entering the crypto arena, the compliance expectations have become more akin to those in traditional finance. Fidelity introduced its first crypto service in 2019, while DBS Bank launched a digital exchange for institutional investors in 2020, setting new benchmarks for compliance in the crypto sector.
The Global Compliance Landscape
Smith observed that the last few years have been pivotal. “Exchanges on the global map all care about compliance now because they want to be part of a global ecosystem,” he noted, suggesting a universal recognition of the importance of regulatory adherence. This change is not just confined to exchanges; peer-to-peer protocols are also under the compliance microscope, as they represent critical points for anti-money laundering efforts.
However, the road to comprehensive compliance is fraught with challenges. The recent Bybit hack serves as a stark reminder of the vulnerabilities that persist. The Lazarus Group, notorious for its sophisticated laundering operations, exploited low-liquidity tokens and no-KYC decentralized exchanges to obfuscate their trails. Smith critiqued the industry’s current state, saying, “We’re making it too easy for them,” pointing to the need for more stringent checks on liquidity providers in decentralized platforms—a call for accountability amid a decentralized ethos.
Challenges and Opportunities Ahead
As the industry grapples with these issues, questions loom about the efficacy of existing compliance measures and the potential for new frameworks. The cryptosphere is at a crossroads, balancing its foundational principles of decentralization with the pragmatic need for oversight. Smith’s commentary raises a critical point: “Why was there so much liquidity available to help launder this money?” This question underscores the necessity for basic checks on the provenance of funds, a measure that could deter illicit activities.
While the strides toward compliance are laudable, the path forward is uncertain. The crypto sector must navigate the tension between innovation and regulation, ensuring that it does not stifle the former in the pursuit of the latter. As traditional financial institutions continue to integrate crypto services, their influence may steer the industry toward more robust compliance standards, yet this transition will require a coordinated effort among stakeholders.
Looking Forward
The future of cryptocurrency compliance remains an open question. Will the industry be able to establish a balance that satisfies regulatory demands without compromising its innovative spirit? As the landscape evolves, the need for adaptive, nuanced regulation becomes ever more apparent. The conversations initiated by figures like Smith are crucial—they invite stakeholders to reflect on the kind of ecosystem they wish to cultivate.
In conclusion, while the crypto industry has made significant strides toward compliance, the journey is far from over. This ongoing transformation presents both challenges and opportunities, prompting a reevaluation of what it means to be both compliant and competitive in an increasingly regulated marketplace. With the stakes higher than ever, the coming years will be decisive in shaping the future of digital finance.
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This article is based on: ‘Huge Shift’ in crypto firms’ compliance mindset, says Elliptic co-founder
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
