Opinion by: Margaret Rosenfeld, Chief Legal Officer of Everstake
Recent instructions from Federal Housing Financial Institutions (FHFA) explore the possibility of cryptocurrencies Included in a single-family mortgage risk assessment It is a popular and long-lasting step.
If implemented, it can allow long-term crypto holders to use their digital assets when they are eligible for collateral without being forced to liquidate.
To realize its potential, the resulting recommendations must reflect how cryptocurrencies actually work. This means recognizing the legitimacy of self-maintaining digital assets.
Misreading FHFA instructions
Some have been misread instruct cryptocurrencies are required to be detained on exchanges regulated by the United States. That would be a serious mistake – contrary to the plain text of the directive.
“Digital assets…must be able to be proven and stored in a regulated, centralized exchange in the United States, comply with all applicable laws.”
The term “can be stored” is clear. Directives require the verification and secure processing of assets through U.S.-regulated infrastructure, rather than to prohibit assets held elsewhere. Verification must be a standard, not a specific guardianship model.
Self-customer safety case
Self-customer is not an edge activity in encryption. It is the basis of system architecture and security. Compared to centralized communication, well-managed self-customers can provide higher transparency, auditability and protection. The collapse of the main custodian and centralized communication shows the possibility of opponent risk.
Correctly documented, self-suppressed assets can be fully audited because Onchain Records demonstrates balance and ownership. They also offer higher security, as refrigerated and non-monitored wallets reduce individual failures. In addition, self-suppressed assets are verifiable and third-party tools can already prove wallet holdings and transaction history.
If policymakers exclude these assets from collateral underwriting simply because there is no exchange, then they have the potential to incentivize less secure practices and punish users for cryptocurrency correctly.
Framework that supports innovation
There is a better way. Any sound-encrypted mortgage framework should allow self-sustainment and custody holding if verifiable and liquidity standards are met. It should also apply appropriate valuation discounts (hairstyles) to explain volatility.
Another key requirement is to limit the total reserves of crypto reserves using a hierarchical approach based on standard risk.
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Finally, it should require clear documentation of verification and pricing methodology, regardless of the type of guardianship. This idea has been applied to turbulent assets such as stocks, foreign currencies and even private shares. Cryptocurrencies should not be different.
Don’t apply cryptocurrency to outdated models
This directive has the potential to modernize Housing Finance For the digital age. However, it must avoid the pitfalls of forcing encryption to mimic traditional models in order to be understood.
We don’t need flattening power to install old risk boxes. We just need a wise way to verify it. Let’s not only fit crypto holders, but also address the integrity of the mortgage system itself.
This is just one example of the bigger challenges facing the new crypto policy. From tax reporting to securities classification, too many rules will be drafted assuming all users rely on centralized intermediaries. Millions of participants choose self-observation or decentralized platforms because they value transparency, autonomy, lack of traditional intermediaries and security. Others prefer centralized provision of regulated guardians.
Both models are legal and any effective regulatory framework must recognize that users will continue to demand different options.
More technical education on decentralized technology is crucial to bridge this gap. Policy makers and regulators need to have a deeper understanding of how decentralization works, why self-customers are important and what tools exist to verify ownership without relying on third parties.
Without this basis, future directives, statements, regulations and legislation may repeat the same error, which ignores most of the ecosystem and cannot address the full scope of crypto industry players.
Opinion by: Margaret Rosenfeld, Chief Legal Officer of Everstake.
This article is for general information purposes and is not intended to be considered legal or investment advice. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent Cointelegraph’s views and opinions.
