Gemini Virtual Currency Association

About the Gemini Virtual Currency Association

US bitcoin exchange Gemini has proposed something called the Gemini Virtual Currency Association. Also known as the VCA, that association would add an additional layer of oversight on virtual commodity cash markets in the form of self-regulation.

Gemini is a registered bitcoin exchange based in the United States. The exchange was founded by Tyler and Cameroon Winklevoss (i.e. the Winklevoss twins).

“We believe adding an additional layer of oversight on virtual commodity cash markets, in the form of self-regulation, is important for consumer protection and to ensure the integrity of these markets,” explained Gemini’s founders in a statement.

With that in mind, Gemini proposes VCA as a non-profit, independent regulatory organization that does not operate any markets. The VCA will also not be a trade association, nor will it provide any regulatory programs for security tokens or security token platforms. They also want the VCA to be in compliance with global standards and best practices for self-regulatory organizations (SROs).

So what will the VCA do if it’s not a trade association? Here are some of the proposed functions of the platform:

  • To foster financially sound, responsible, and innovative virtual commodity markets through a system of industry-sponsored standards, sound practices, and oversights that promote price discovery, efficiency, and transparency
  • To incentivize the detection and deterrence of manipulative and fraudulent acts and practices across the cryptocurrency industry; the VCA will partner with regulators (particularly the CFTC) to share or refer information, as appropriate, to combat fraud within the industry
  • To require member firms to commit in writing, upon joining VCA, to operating their virtual commodity markets in compliance with sound practices, and to provide a sanctions-based accountability program to encourage ongoing member compliance

Who Can Join The Gemini Virtual Currency Association? How Will It Be Governed?

Membership and governance in the Virtual Currency Association will be open to virtual commodity platforms, over the counter trading firms, and other trading facilities. Membership will initially focus on those who provide trading services to American customers.

Basically, membership will be open to cryptocurrency exchanges and other trading platforms that meet the following requirements:

  • Provide an all-to-all platform or venue, available to US participants, for transacting in the spot virtual commodity markets
  • Provide OTC or off-exchange services, available to US participants, for transacting in the spot virtual commodity markets

Furthermore, when applicable, entities must be in compliance with and have obtained relevant licenses required to operate a business that involves holding customer fiat funds and the custody of customer virtual commodities.

In terms of governance, the Virtual Commodity Association will be governed by a Board of Directors, including a required number of independent directors, funded by member fees. The specific board structure will be announced in the future.

The VCA will also consider other potential member types in the future. Based on the requirements outlined above, the VCA will mostly focus on cryptocurrency exchanges that at least partially cater to US customers (i.e. exchanges can be based in the UK, but they accept registrations from US customers).

Virtual Currency Association Annual Certification Requirements

The Virtual Currency Association will certify members on an annual basis. Members must be certified to ensure they’re in compliance with various “Sound Practices” as outlined by the VCA. Those sound practices will include all of the following:

Responsible Financial Management:

The VCA will establish a transparent program of financial responsibilities and controls required by members to ensure confidence in the fiscal soundness of members and to encourage customer confidence. In other words, the VCA doesn’t want to accept members who are at risk of going under. It wants to accept members that bolster the reputation of the crypto industry.

Transparency and Conflicts of Interest:

The VCA will provide appropriate transparency regarding bids, offers, executions, and other relevant data to the public. It will adopt policies to avoid conflicts of interest.

Rules-based Markets:

The VCA will maintain and enforce a system of marketplace conduct rules. It will also implement policies and procedures governing how to respond to customer issues and complaints.

Cybersecurity, Recordkeeping, and Information Security:

The VCA will implement and maintain current best practices with respect to cybersecurity, information security, and recordkeeping.

Surveillance:

The VCA Will monitor and surveil markets to detect and deter (and, where appropriate, discipline) manipulative and fraudulent acts and practices across the cryptocurrency community.

Information Sharing:

Members of the VCA will agree to enter into information sharing agreements. Information will be shared for “marketplace surveillance” purposes. Information will be shared with other members of the VCA as well as with regulated exchanges and trading platforms that list virtual commodities.

Cooperation with Regulators:

Members of the VCA will be required to cooperate with regulators. This cooperation includes reporting fraudulent conduct when detected.

Legal Analysis:

VCA members are required to agree to perform due diligence and legal analysis when determining the legal status of a commodity available for trading, with the goal of avoiding listing and trading security tokens (i.e. tokens that violate the Howey Test) unless the exchange is specifically registered to trade securities.

When members fail to comply with the Sound Practices outlined above, the Virtual Currency Association will impose sanctions. All members must previously agree to such sanctions.

Gemini Virtual Currency Association Conclusion

The self-regulatory approach has historically worked to protect and police various markets. The main thing that’s needed, of course, is a strong self-regulatory organization (SRO). Gemini has proposed the Virtual Currency Association, or VCA, as the ideal self-regulatory organization for the cryptocurrency exchange industry.

To learn more about Gemini’s proposed regulations for the cryptocurrency industry, visit their VCA blog post here.

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