FTX lessons: Regulate crypto in Uganda

Uganda and the world was taken by surprise early November when FTX CEO Sam Bankman Fried announced that his cryptocurrency exchange which enabled users to trade digital currencies for traditional money and vice versa was filing for Chapter 11 proceedings citing a severe liquidity crisis.

Now, in the United States, Chapter 11 proceedings are what we in Uganda would call insolvency proceedings. It is no shock that he was arrested from his Bahamas haven and charged with fraud after a congressional hearing last week.

The effects of the collapse have been dire for investors, management and competitors with over a million depositors unable to access their funds, management facing possible charges and penalties to competing platforms collapsing as a result. This coupled with a lack of liquidity, significant price volatility, opaque pricing, potential market manipulation, hacking, and fraud all raise the risk of losing everything.

I will not delve into the gist of the turmoil at the FTX centre and how its downfall came about but rather use this fall as a study to make the much needed case for the change that Ugandans in the crypto space have longed to see, the regulation of cryptocurrencies and crypto based exchange platforms such as FTX.

The Blockchain Association of Uganda has made strides to ensure the regulation of these crypto spaces in a bid to protect Ugandan users so that they can enjoy security of their deposits, insurance on traded sums as well as protection from unscrupulous schemes and actors such as FTX. It is no wonder that markets internationally have been shaken to the core, something that leaves one wondering what would happen if the same were to happen to an unregulated space such as Uganda’s.

In light of the foregoing, it is only prudent that legislators add regulation and licensing of blockchain to the top of the national priorities. This would include but not be limited to the determination and issuance of rules for trading and handling of crypto within Uganda in line with the spirit of consumer protection.

Draft laws should also seek to extend the mandate of the Deposit Protection Fund to offer insurance to user deposits for licenced platforms which has the ripple effect of increasing the confidence of the public in crypto from a perceived enabling environment. It also reduces the ‘would be’ colossal losses from a debacle like the one at FTX.

There is also a need for amendments to the current laws pertaining to securities as discerned from commodities but it is also a no-brainer that stringent laws attract high compliance. Increased scrutiny for competence of the management teams of some of the platforms and currencies in the Ugandan market as well as ensuring proper protocols and policies of accounting, risk and corporate governance are adhered to.

The 4th Industrial Revolution is upon us and crypto regulation is as equally important as space exploration, we need a shift in the trajectory of our national priorities because crypto absorption is inevitable.

Mr Raymond Amumpaire is a lawyer and a digital rights activist.

@RayGoneWild