Crypto Breaks the Rules. That’s the Point.

One of the most common criticisms of cryptocurrency is that it is just a way to get around financial rules and regulations. That criticism is not entirely wrong — but with crypto, as with many other innovations, regulatory arbitrage is a feature, not a bug.

Very often, regulatory arbitrage is most successful when the innovation improves on some aspects of the older methods. The arbitrage conveys the message that the old regulations need to change.

Consider a concrete example. Many crypto institutions issue tokens, which to many regulators possess the properties of securities and ought to be regulated as such. But they aren’t, at least not uniformly. So if you issue a crypto token, but don’t have to register it as a security and go through the process of satisfying securities laws, you are engaging in regulatory arbitrage.