Dasset Collapse Exposes Gaps In NZ Crypto Regulation?

Friday, 24 May 2024, 6:00 am
Press Release: Hugh Grant

Why is everyone calling New Zealand’s crypto industry a frayed safety net? In the past few months, New Zealand’s crypto industry was shackled by the demise of Dasset, an Auckland-based trading exchange, and since then, the industry has been trying to regain the trust of its consumers.

The news of the liquidation of Dasset came out unexpectedly for the investors and has left hundreds of them in the middle of nowhere. They can’t even access their invested fund; we can only imagine how disturbing it can be for them.

Although the whole investigation story behind the demise of Dasset remains ongoing under the supervision of the Financial Markets Authority (FMA), the incident has highlighted other concerning factors like the gaps in New Zealand’s crypto regulations.

With this incident, investors are raising questions about the regulatory bodies and their ability to adequately protect investors and ensure a healthy environment for cryptocurrencies in New Zealand. Let’s dig into the details!

What Happened With Dasset?

Dasset is one of the famous crypto exchanges that originates from Auckland and is operating in New Zealand, where it is liquidated. But what was the reason behind this huge step?

There are multiple reasons behind Dasset's liquidation, but the most concerning thing is that it shows the loopholes in the crypto exchange’s structure of operations. These factors contributed to the demise of the company.

The Banking issues - It is in the reports that Dasset lost access to its banking provider in January 2023. This hampered the exchange's ability to function smoothly. Without a bank account, it becomes difficult to facilitate fiat (traditional currency) deposits and withdrawals, hindering core exchange operations.

The Values Of Digital Assets Declined - According to some investors, the decline in asset values added salt to the wounds of Dasset. In the past few years, the market has experienced extreme volatility. The major decline or dips were in the value of popular digital assets like Bitcoin. This led Dasset to the downfall of its financial health, and the company was unable to meet the withdrawal requests.

Mismanagement Within The Company - When the Serious Fraud Office (SFO) opened an investigation on Dasset, they witnesses major mismanagement within the company. They raised questions over the potential mismanagement in the financial recordings as well as in the basic operational records. News reports suggest an estimated $6 million in missing funds and suspicious transactions.

The investigations are ongoing, so this is just the tip of the iceberg. The exact details surrounding Dasset’s downfall will emerge once the case is solved and closed.

New Zealand’s Regulatory Gaps Exposed With Dasset’s Case

New Zealand’s regulatory structure seemed to be sound, as people never got to hear about such cases until this Dasset incident showed up. Is New Zealand’s current crypto regulation null and void? Let’s see!

Are The Consumers Protected?

One of the primary concerns in the Dasset situation is the fate of customer funds. Were there clear regulations mandating how crypto exchanges or trade bots like Immediate Vault should hold and safeguard client assets? Did Dasset segregate customer funds from its own operational holdings? Uncertainties in these areas leave investors vulnerable in the event of an exchange failure.

Current regulations might not offer the same level of protection to cryptocurrency investors compared to traditional financial markets. For instance, are there any investor compensation schemes in place if an exchange goes bankrupt and customer funds are lost?

Is The Authority Overseeing Exchanges?

The FMA is responsible for regulating financial markets in New Zealand. However, the extent of their authority over cryptocurrency exchanges remains unclear. Are there clear licensing requirements for exchanges to operate? Does the FMA have sufficient resources and expertise to effectively monitor exchange activities and identify potential risks?

The absence of established SROs (Self-Regulatory Organizations) specific to the crypto industry creates a gap in oversight. SROs could set industry standards, conduct audits, and enforce best practices, promoting a more accountable and transparent environment.

Do They Enforce Transparency And Reporting?

Current regulations might not mandate a high enough level of transparency from crypto exchanges. Were Dasset's financial statements readily available for public scrutiny? Did they disclose their risk management strategies and internal controls? Limited transparency makes it difficult for investors to assess the financial health and operational risks associated with an exchange.

The lack of clear auditing standards specific to the crypto industry creates challenges. Are there established accounting practices for valuing digital assets and ensuring the accuracy of financial records within crypto exchanges?

Final Thoughts

The sudden collapse of Dasset, an Auckland-based crypto exchange, has sent shockwaves through the New Zealand cryptocurrency landscape. This event serves as a stark reminder of the potential pitfalls associated with gaps in current regulations.

The Dasset case exposes crucial areas where the regulatory framework might be inadequate, particularly in terms of consumer protection, exchange oversight, and transparency.

Without addressing these shortcomings, investors remain vulnerable, and the industry's long-term growth prospects are hampered.

By implementing well-designed regulations, New Zealand has an opportunity to build a stronger foundation for its crypto ecosystem. Strengthened consumer protection measures can promote trust among investors, while robust exchange oversight can mitigate risks and promote responsible business practices.

Furthermore, increased transparency can shed light on exchange operations, allowing for informed investment decisions.

The benefits of a well-regulated crypto environment are clear. Increased investor confidence can unlock new capital flows, fueling innovation and industry growth.

Robust regulations also create a more attractive environment for established financial institutions to participate, further legitimizing the crypto space in New Zealand.

The Dasset collapse presents a crucial juncture for New Zealand. By proactively addressing the exposed regulatory gaps, the country can position itself as a leader in promoting a safe, secure, and thriving crypto environment for the future.

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