A modest, 5-prong approach to sensible regulation of crypto in the US which could have prevented FTX:

1/ Regulate Stablecoin Reserves. Require stablecoin issuers to maintain 1:1 reserves at FDIC insured banks. Mandate quarterly audits of reserves and reporting on mint & burn activity. Implement safety and soundness controls with a diversity of banks proportional to reserve size.

2/ Separate Trading and Custody. Exchanges must store assets using external custody outside of any affiliates. This creates a check-and-balance for verifying reserve assets under any exchange’s control. Custody must be held with Qualified Custody.

3/ Require Digital Asset Exchanges to be 100% Digital. Disallow direct trading of digital assets with fiat or off-chain assets. Force exchanges to be 100% digital. All exchanges will be on-chain auditable, enabling Proof-of-Reserves that actually works.

4/ Eliminate Digital Asset Exchanges from using omnibus wallets. Omnibus wallets acceptable, but custodian must be aware of exchange’s clients in omnibus pool. Custodian provides bankruptcy protection to the exchange’s clients. Custodian participates in AML/KYC of exch clients

5/ Define Securities. This is the most cited complaint for the SEC. Define “what is a security”, along with sensible grandfathering policies while providing protection to innovators and startups (e.g. listen to @Hester Peirce).