The "average consumer" should be educated on different types of financial ownership by the state run media/financial press: custodial-legacy (Barclays), custodial-challenger (Revolut), defacto-custodial(arguably all centralized crypto exchanges..e.g. you can move the crypto off it), non-custodial (Meta Mask) etc. Then they should be allowed to risk or derisk as they see fit by choosing the most competitive option on the market. IMO stability in the economy comes from having a large number of prosumer types who can take activist positions when they need to, simply by quickly switching provider and getting a better deal or supporting something in their interest or to their taste. This is especially important considering the real alternative DeFi provides versus bank based lending and slippery financial constructs endemic in that industry (wasn't it the latter that caused 2008? Nearly any alternative is better than that situation.).
Other points:
- KYC exists on most of the major crypto exchanges with Coinbase and Gemini doing this properly. Proof that it works in the long term is not there yet of course.
- Fraud mostly happens through the traditional banking system. It's more complicated and embedded in how things are done but it's still fraud. The BBC on Barclays role in 2008: "At its worst, for every £100 the banks had lent, if as little as £3 or £4 failed to be repaid, it might be enough to bankrupt them."
https://www.bbc.co.uk/news/business-51593639
- I struggle to see the sharp differences between a Coinbase or Binance (ok minus the overleveraged trading on the latter) and a Revolut or Monzo. Both allow different ways of accessing crypto within custodial model, have KYC, have a debit card. The only difference is how they have each responded to poorly formulated regulatory frameworks (2-3 years ago). Once again, binance sucks in so many ways but there's still something incredibly misleading about the way it is covered.
- Tether is no good but Dai is an excellent alternative. In any case, Tether operates similarly to many banks where 1:1 shadowing of money held/money deposited is obviously never going to work out as a profitable business model. Tether is not viable long term but neither are most banks then.
These things aside, my main overall point here is that:
- UK financial institutions should protect consumers but should not create information asymmetries (via state run media and highly influential financial press) that heavily predispose a certain outcome in the favour of a tiny subset of companies innovating in this space. For example, FUD focussed on a single company that is directly competing with Revolut or Monzo. This is anticompetitive in my view and there is such a lack of clarity on what is acceptable that it is likely to stifle any innovation going forward.