Scythes are rampant, what kind of supervision does Web3 need?

Author: Luke, Mars Finance

1. Celebrity Meme Coin chaos: The call for harvesting and supervision

One of the charms of Web3 is the decentralized ideal, but driven by the celebrity effect, this ideal is often distorted into a breeding ground for speculation. Recently, the LIBRA token sold by Argentine President Javier Milei has become a typical market manipulation case. When Mile first promoted LIBRA, the token's market value once exceeded US$4.5 billion. However, just four hours later, the token plummeted 85%, its market value shrank by more than US$4 billion, and investors suffered heavy losses. The on-chain data reveals that the project party had quietly ambushed funds before the tweet was released and cashed out through large-scale sales, with a cumulative profit of more than US$100 million. After deleting the tweet, Mile argued that she "did not understand the details of the project." However, when the token information was forwarded again on February 17, speculation in the market was further aroused, and doubts were heard one after another. Even so, Mile insisted in a TV interview: "I just shared information and did not participate in the project", although this behavior has caused losses to many investors.

Mile's words and actions made investors feel exploited, especially before and after the entire incident, he neither assumed political responsibility nor provided any substantial protection for retail investors, but instead treated Web3 as a monkey. This chaos has made the voice of Web3 investors increasingly strong, and they urgently need a regulatory framework that can balance market freedom and investor protection.

In this case, regulatory issues in the Web3 field appear particularly urgent. The consequences of market manipulation and false propaganda not only destroy investors' confidence, but also put the legitimacy of the entire crypto industry to face severe tests. How to establish an effective legal framework while maintaining the spirit of decentralization? How to avoid the abuse of celebrity effects like Mile? These issues have triggered widespread discussions inside and outside the industry, and the calls for supervision have become increasingly high.

2. Exploration of regulatory frameworks: From MiCA Act to technology-driven compliance innovation

With the wild growth of Web3, the lack of supervision has gradually revealed its disadvantages, but how to find a balance between the core values ​​of decentralization and market norms has always been an urgent problem. The EU's Crypto Asset Market Regulation (MiCA) provides a regulatory framework worth learning from, aiming to control the risks posed by crypto assets through tiered management. MiCA has set strict reserve requirements for stablecoins such as asset reference tokens (ARTs) and electronic currency tokens (EMTs), and has set upper limits for daily trading volume to avoid excessive fluctuations and systemic risks. Regulatory requirements for crypto asset service providers (CASPs) emphasize the isolation, transparent pricing and licensing system of customer funds to ensure the compliance of the market.

This hierarchical supervision model can be effectively extended to the management of Meme coins. For project parties, the mandatory disclosure of token allocation mechanism and locking strategy is particularly important. By setting more transparent rules, celebrities can be prevented from earning short-term benefits by "taking advantage of the momentum and hype". At the same time, drawing on MiCA's practices, setting risk warnings on high-volatility assets on exchanges and imposing moderate restrictions on leveraged trading can further protect the interests of retail investors and prevent them from becoming "cannon fodder" in the violent market fluctuations.

However, there is still a clear conflict between the traditional KYC (customer authentication) mechanism and the decentralization principle of Web3. To make up for this contradiction, technological innovation provides new solutions. For example, Zero Knowledge Proof-of-the-Signature (ZKPs) technology has found a balance between privacy protection and compliance. Through innovative tools such as zCloak, users can selectively disclose necessary information (such as nationality, age, etc.) without the need to expose complete personal data. This approach not only meets regulatory requirements such as anti-money laundering, but also fully protects users' privacy rights.

For high-risk assets such as Meme coins, this technology should be adopted in particular to ensure that only investors with corresponding risk tolerance can participate. In addition, the application of smart contracts also has great potential in monitoring market manipulation and identifying insider trading. For example, smart contracts can track large token transfers in real time, combine on-chain data analysis, identify abnormal behaviors, and promptly warn of possible market manipulation behaviors. This technology-driven compliance method can not only strengthen market supervision, but also ensure transparency through decentralized means.

To sum up, from the regulatory framework of the MiCA Act to technology-driven compliance innovation, the regulatory prospects in the Web3 sector are not useless. Although we are still facing the game between technology and regulations, with the continuous development of technology and the gradual improvement of regulatory policies, a safer and transparent Web3 market may be just around the corner.

3. The balance between decentralization and centralization: building a

regulatory philosophy of "moderate intervention"

The core value of Web3 lies in eliminating intermediaries, advocating the ideal of decentralization, and giving individuals greater freedom and control. However, completely letting go of this freedom may eventually lead to market chaos and even disorderly competition like the "laws of the jungle". To this end, the ideal regulatory framework should pursue "moderate intervention", which can not only guarantee the decentralized innovative spirit, but also prevent the market from falling into extreme speculation and manipulation.

The primary objectives of regulation should focus on core areas - anti-money laundering, investor protection and market equity. Excessive intervention in the technology protocol itself will have the potential to undermine the innovation foundation of Web3, so regulation should avoid excessively touching the protocol level and focus on more substantial risk points. For example, how the platform ensures the safety of investors' funds during its operation, how to prevent market manipulation, and how to ensure transparent information disclosure are areas that supervision should focus on.

At the same time, the characteristics of decentralization have led to the increasing popularity of the concept of "code is law" in the Web3 field. This means that regulatory rules are not just on paper, but technical means such as smart contracts can enable legal provisions to be implemented directly on the chain. For example, rules such as token locking and tax deduction can be automatically executed through smart contracts, thereby reducing the space for human discretion. With this "code is law" approach, regulation no longer relies on a single third-party organization to implement it, but ensures its impartiality and transparency through decentralized technology.

In addition, global collaboration is also a part of building an effective regulatory framework that cannot be ignored. Web3 is a global digital ecosystem, and regulation in a single country or region often finds it difficult to cope with the complex situation of cross-border transactions and market manipulation. In order to prevent regulatory arbitrage, countries around the world need to strengthen coordination and establish a cross-border regulatory sandbox to provide a compliant "experimental field" for various crypto assets and trading platforms. This mechanism will help to unify regulatory standards globally and avoid market chaos caused by policy differences among countries.

Taking the EU's MiCA Act as an example, its implementation adopts a phased strategy, such as setting a 12-18-month transition period, aiming to balance market adaptability and risk prevention. This transition period setting not only gives the market enough time to adjust and adapt to new regulations, but also effectively reduces the suppression of industry innovation. In addition, regulators should work closely with the Web3 community to ensure that the policy development process is more transparent and inclusive. For example, consider incorporating decentralized autonomous organizations (DAOs) into the governance framework to engage communities in rule development and ensure that more stakeholders’ voices are heard.

Finding a balance between decentralization and centralization is not easy, but with the advancement of technology and deepening of global regulatory cooperation, a regulatory framework that can not only protect investors' rights and interests, but also maintain the spirit of decentralization will surely Gradually take shape. This regulatory philosophy of "moderate intervention" may be the key to the development of the Web3 field.

4. Future Outlook: From chaos governance to ecological reconstruction

The Meme coin incident in Milai exposed the fragility of the Web3 ecosystem and also sounded a wake-up call for the lack of regulation in the industry. However, this event does not represent the end of Web3, but is a must for the industry to mature. In the future, Web3 will not only be a market full of speculative bubbles, but is expected to become an important infrastructure to promote financial democratization and economic innovation.

Advances in technology will play a key role in this process. Through innovative means such as smart contracts, on-chain monitoring and privacy protection technologies, Web3 can enhance market transparency while ensuring investors' rights and interests. The application of these technical tools can effectively monitor market behavior, prevent manipulation and insider trading, laying the foundation for the healthy development of the industry.

However, the role of supervision is not only to crack down on illegal behaviors, but also to guide the industry to develop in a more stable and mature direction. Through a reasonable regulatory framework and symbiosis of technology, Web3 has the potential to balance decentralization and compliance, avoid extreme speculation in the market, while encouraging innovation and value creation.

The future of Web3 requires joint efforts by all parties. With the deepening of global regulatory collaboration and continuous innovation in technology, Web3 can not only get rid of the bubble and gradually mature, but also become an indispensable part of the global financial system. Ultimately, Web3 will be more than just a synonym for digital currencies, it will bring profound changes to the global economy.