Regulatory Arbitrage in Crypto Will Intensify

Monero (XMR) core developer Riccardo “Fluffypony’” Spagni has said he expects regulatory arbitrage to become an increasingly prevalent and impactful phenomenon in the crypto space in coming years.

Spagni made his remarks during a panel at the annual “Innovate Finance” event, hosted by digital assets liquidity provider E8 Partners in Davos, Switzerland on Jan. 25.

Spagni began by dismissing the notion that “the very existence of crypto is going to cause governments to topple […] [as an] obviously ludicrous […] pipe dream” — underscoring that decentralized finance will not immediately wrest military and political might from the world powers’ hands.

What he proposed instead was a more subtle shift in the geographic distribution of talent and innovation that will be sparked by the uneven global crypto regulatory landscape. Spagni suggested that crypto companies will increasingly turn to regulatory arbitrage to adopt jurisdictions that have made themselves “open to decentralized projects, through regulation [and] tax breaks”:

“This won’t necessarily lead to governments being toppled, but it’s going to lead to an interesting brain drain […] some of the smartest people on the planet are working [in crypto] and when they start clustering in places that are more friendly from a regulatory perspective, that’s going to create something very, very interesting.”

Spagni pointed to crypto friendly locations such as Malta — known as the “blockchain island” due to its robust and transparent crypto regulatory climate — and proposed that individuals and families will increasingly uproot and move to countries where they can develop their innovative projects with minimum encumbrance.

Spagni’s prediction recalls tech investor Tim Draper’s response to the harsh anti-crypto agenda pursued by India’s central bank. Last April, in the wake of the Reserve Bank of India’s prohibition on domestic banks dealing with crypto-related businesses, Draper warned of a potential brain drain, characterizing the move as a huge mistake for the country.

Facts on the ground so far have suggested that arbitrage is indeed underway globally; several crypto industry leaders relocated their operations to Malta last year, including crypto exchanges Binance, OKex and BitBay.