Cardano, Avalanche, Sui, and IOTA: Advocating for Balanced Crypto Regulations
Exploring the evolving landscape of cryptocurrency regulation, organizations behind Cardano, Avalanche, Sui, and IOTA have jointly addressed the UK Financial Conduct Authority (FCA). Their collective response to the FCA’s CP25/40 consultation emphasizes the need for distinct boundaries concerning “custody and control” while advising against conflating non-custodial crypto activities with regulations meant for intermediaries. This initiative, spearheaded by the IOTA Foundation in collaboration with the Sui Foundation, Cardano Foundation, and the Avalanche Policy Coalition, targets pivotal issues in the realm of staking and decentralized finance (DeFi).
Cardano, Avalanche, Sui, and IOTA Caution Against Excessive Regulation
The joint statement from these organizations underscores the necessity of differentiating between infrastructure functions and intermediary activities in both staking and DeFi. The group advocates for regulatory measures to concentrate on entities that have custody, decision-making authority, or commercial intermediation roles, while maintaining the impartiality of public blockchain infrastructure.
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The letter further argues that developers and infrastructure providers should be excluded from stringent regulations. These entities are involved in software development, validation, communication, or protocol-level services without exercising control over client assets or making unilateral decisions. Consequently, they should receive a regulatory approach that is both proportionate and distinct from financial intermediation.
Clarifying the Staking Landscape
The discussion on staking reveals a spectrum ranging from entirely custodial services—where firms manage assets and execute transactions—to protocol-native activities where users retain control over their keys and assets. IOTA’s post on X highlights the necessity of distinguishing between custodial and non-custodial staking models. For custodial staking, where firms secure assets, the group recommends appropriate retail disclosures, consent, and record-keeping. Conversely, non-custodial or protocol-level staking, which does not involve control of user assets or keys, should not fall under the same regulatory framework.
The letter reiterates this stance, recommending that custodial arrangements should adhere to proposed requirements concerning information provision, key contractual terms, explicit consent from retail clients, and record-keeping. However, for non-custodial and delegated staking, where firms do not control client assets or private keys, the group advises these activities remain beyond the scope of regulated staking activities, aligning regulatory obligations with actual risk sources.
DeFi and the Concept of Control
The second focal point in the regulatory discussion is the FCA’s notion of a “clear controlling person” within DeFi. IOTA argues that this term requires a “technical, objective definition,” asserting that regulatory responsibilities should correlate with custody, discretion, and unilateral control rather than coding, governance participation, or providing neutral infrastructure.
The letter acknowledges the FCA’s intent to regulate scenarios where an identifiable party is effectively conducting crypto asset activities. However, it cautions against triggering regulatory status based solely on development and infrastructure involvement. Instead, the letter proposes that expectations should hinge on demonstrable, unilateral control over protocol operations, governance, or economic outcomes, given that DeFi relies on self-custody, automated execution, and open participation.
Positioning the argument as one of refined scope rather than a rejection of rules, IOTA contends that smarter scoping can enhance consumer protection in areas of genuine risk while ensuring non-custodial innovation is not stifled by excessive regulation. The letter concludes by affirming that obligations tied to custody, discretion, and unilateral control will bolster legal certainty, improve consumer protection where necessary, and reinforce the UK’s understanding of decentralized technologies’ architectural realities.
At the time of writing, Cardano is trading at $0.264.
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