Central Bank Regulation Document Sparks Controversy: Oversight or Cryptocurrency Industry’s Demise?

The Central Bank of Iran has unveiled a new 18-page regulatory framework for cryptocurrency exchanges. Rather than fostering growth, critics argue it imposes restrictive conditions that could stifle the sector. Key provisions include exclusive licensing, a hefty one-trillion-rial collateral requirement, bans on unapproved stablecoins, transaction limits, and a three-month deadline for compliance - all signaling an intent to exert absolute control over the cryptocurrency market.

While the document is ostensibly aimed at enhancing transparency and mitigating risks, experts believe it leans heavily towards centralized oversight and curbing innovation. Analysts warn that only large, well-funded exchanges might survive this regulatory squeeze, leaving startups and smaller players - the supposed engines of creativity - locked out of the market.

Abbas Ashtiani, head of the Blockchain Commission of Iran's Computer Trade Organization, and Saleh Khajeh-Delouei, vice-chair of the Cryptocurrency Commission of the Fintech Association, both highlight a troubling trend: the document does more to confine the industry than regulate it effectively.

Ashtiani predicts weakened private exchanges and a potential exodus of cybersecurity and blockchain talent from Iran. Khajeh-Delouei echoes these sentiments, warning that the Central Bank's approach could stifle innovation, push users toward underground or foreign platforms, and eventually lead to state monopolization at the expense of private enterprise.

The experts also pinpoint specific issues within the framework. Ashtiani criticizes the requirement for businesses to operate as liability companies, arguing this is incompatible with the decentralized nature of crypto assets. He also points to vague definitions of "cryptocurrency," which could lead to legal ambiguities and hinder adoption. Meanwhile, Khajeh-Delouei identifies Article 46 as particularly concerning. It mandates proof of foreign currency origin for transactions, a condition that could cripple the industry in a country already grappling with sanctions.

Compared to global standards, Iran's regulations are deemed excessively stringent. In Europe, the MiCA framework focuses on user protection and asset classification, while the U.S. and UAE prioritize innovation and transparency. Iran's focus on currency controls and broad bans starkly contrasts with these approaches and raises fears of a stagnant crypto landscape.

If implemented, the experts foresee a dual outcome: formal recognition of some industry segments, but severe restrictions undermining innovation and driving users to underground markets. The mandate to use only Central Bank-approved stablecoins could even outlaw Tether, a widely-used asset in Iran for preserving value.

Both experts emphasize the need for alternative solutions and advocacy to prevent these regulations from becoming law. However, they caution that the Central Bank appears intent on unilateral control, leaving little room for collaboration with private actors.