Investor Protection

Inherent Risks in Crypto

One of the key challenges in blockchain is user protection. Unlike earlier innovations, such as the internet and ride-sharing, which primarily benefitted consumers, blockchain projects often expose users to financial risks due to prevalent practices like "Pump and Dump" and "Rug Pull" schemes. In such scams, users may experience severe financial losses without much recourse. While the internet has scams, blockchain-based scams directly impact users financially and at larger scales due to the decentralized and anonymous nature of many crypto projects. The lack of a structured regulatory approach for user protection leaves crypto users vulnerable and diminishes public trust in blockchain technology.

Lack of Support for Novices Investors/Users

Blockchain’s user experience presents unique challenges. For example, phrases like "Not your keys, not your coins" highlight the risks associated with private key management, which is essential for safeguarding crypto assets. However, this approach leaves users with limited options for recourse if they lose their keys, potentially jeopardizing their financial security. Moreover, the blockchain community often emphasizes "don’t trust, verify," assuming that all users have the technical knowledge to evaluate investment risks. This creates a barrier for newcomers, as the lack of structured support and guidance prevents many potential users from safely navigating the blockchain space. For example, a novice user interested in investing in on-chain assets may not fully understand the risks, limiting wider adoption.

Note for builders

Real world Assets qualify directly as securities, and one rule of thumb every build should have is to always act in the best interest of investor and ensuring investor protection. On-chain adoption still has UX issues and requires investor education. We can only expect users to spend the extra effort to use blockchain wallets or systems, if we can think of offering 10x better selection of assets on-chain, or make the issuance or exchange 10x efficient in a traditionally compliant way, or 10x more information or trust for the assets. This also means the effort which on-chain builders have to spend is much more than the effort that is needed by Fintech startups.