Ship or Die at Accelerate 2025: Crypto Regulation: A Principles-Based Approach

As the crypto industry matures, regulators worldwide are grappling with how to effectively oversee this rapidly evolving sector. At Solana's Accelerate 2025 conference, Can Sun, co-founder of Backpack Exchange, shared valuable insights on navigating the complex landscape of crypto regulation while fostering innovation.

Summary

Can Sun's presentation at Accelerate 2025 focused on the principles-based approach to crypto regulation, emphasizing the importance of balancing innovation with compliance. He highlighted that while many traditional financial regulatory principles apply to crypto, the unique aspects of blockchain technology require a nuanced approach.

Sun explained that regulators are increasingly looking beyond labels like "decentralized" or "DeFi" to examine the underlying technical implementations of crypto projects. This scrutiny aims to determine the actual level of control and decentralization, which has implications for regulatory compliance.

The Backpack Exchange co-founder shared examples of how his company has integrated regulatory considerations into their product development process. By combining innovative blockchain technology with compliance measures, Backpack aims to create a trading platform that is both user-friendly and adheres to regulatory standards.

Sun concluded by emphasizing that compliance and innovation are not mutually exclusive. He envisions a future where crypto platforms can leverage blockchain technology to enhance transparency and trust, potentially surpassing traditional financial institutions in terms of verifiability and accountability.

Key Points:

Principles of Crypto Regulation

Can Sun emphasized that despite the novelty of cryptocurrency, many fundamental principles of financial regulation still apply. These include preventing financial crimes, protecting investors, maintaining market integrity, and preventing systemic contagion. Regulators are increasingly recognizing that fraud, scams, and market manipulation in crypto should be treated similarly to such activities in traditional finance.

However, Sun also highlighted that crypto introduces new concepts, particularly around decentralization and control. Unlike traditional finance where control is often binary, blockchain technology has created a spectrum of control and decentralization. This nuance requires regulators to look beyond labels and examine the technical details of how crypto projects actually function.

Decentralization and Regulatory Scrutiny

Regulators are becoming more sophisticated in their understanding of crypto projects, looking "under the hood" to assess the true level of decentralization and control. Sun provided several examples of the questions regulators are now asking:

• For smart contracts: Are they truly immutable, or does someone hold upgrade keys?
• For DeFi protocols: How do liquidations work, and who has control over user assets?
• For Layer 2 solutions: Is there a centralized sequencer, and what risks does this introduce?

Sun argued that true decentralization, when implemented correctly, can actually strengthen regulatory principles by providing users with greater confidence and reducing the risk of fraud or mismanagement.

Balancing Innovation and Compliance

Using Backpack Exchange as an example, Sun described how crypto startups can integrate regulatory considerations into their product development process. He emphasized that this approach is not just about ticking compliance boxes, but about building better products that users can trust.

For instance, Backpack's perpetual futures trading system was designed with real-time P&L settlements to ensure accurate asset reconciliation, a feature that enhances both user experience and regulatory compliance. Similarly, their trading engine was built with blockchain-like properties such as verifiability and replayability, which address regulatory concerns around market integrity and investor protection.

The Future of Crypto Regulation

Sun envisions a future where crypto platforms can leverage blockchain technology to enhance transparency and trust beyond what is possible in traditional finance. He advocates for systems where "everyone in the world can be our regulator," with fully verifiable transactions and risk parameters.

The Backpack co-founder stressed that regulation is a two-way conversation between the industry and regulators. By being transparent about the risks and benefits of crypto technology, the industry can help shape pro-innovation laws and regulations that will support growth in the coming decades.

Facts + Figures

• Crypto has been around for 16 years, with regulators taking various approaches globally
• Recent regulatory developments include MiCA in Europe, new stablecoin legislation in Japan, and VASP regulations in Korea and Hong Kong
• Dubai is positioning itself as a crypto hub with favorable regulations
• US regulators like the SEC and CFTC have shifted from "regulation by enforcement" to developing specific crypto laws
• Backpack Exchange launched its perpetual futures trading system a few months prior to this presentation
• Backpack's trading system uses three independent nodes, each running a separate instance of the exchange
• The exchange can replay its entire transaction history from November 2023

Top quotes

1. "If it walks like a duck and it quacks like a duck, it's probably a duck issue, treated like a duck."
2. "Crypto is not just a label. Just because you call yourself crypto or you're decentralized or a DeFi, doesn't mean that there's no control."
3. "Decentralization, done right, actually strengthens regulatory principles."
4. "We want to be trusted not just because we are regulated by governments and regulators, but also because it's fully verifiable and open."
5. "Everyone in the world can be our regulator."
6. "Regulation is really a two-way street. It's a conversation between the industry and regulators."

Questions Answered

What are the key principles of financial regulation that apply to crypto?

The key principles of financial regulation that apply to crypto include preventing financial crimes, protecting investors, maintaining market integrity, and preventing systemic contagion. Can Sun emphasized that these fundamental principles from traditional finance are equally relevant in the crypto space, despite its innovative nature.

How are regulators approaching the concept of decentralization in crypto?

Regulators are looking beyond labels like "decentralized" or "DeFi" and examining the technical details of crypto projects. They're assessing factors such as open-source code, custody arrangements, autonomy, and the level of control held by individuals or small groups. This approach aims to understand the true nature of decentralization in each project.

How can crypto startups balance innovation with regulatory compliance?

Crypto startups can balance innovation and compliance by integrating regulatory considerations into their product development process. Can Sun gave examples from Backpack Exchange, where they designed systems with both innovative features and compliance measures in mind. This approach allows companies to create user-friendly products that also meet regulatory standards.

What is the future of crypto regulation according to Can Sun?

Can Sun envisions a future where crypto platforms leverage blockchain technology to enhance transparency and trust beyond traditional finance capabilities. He advocates for systems where transactions and risk parameters are fully verifiable by anyone, creating a level of openness where "everyone in the world can be our regulator."

How important is the relationship between the crypto industry and regulators?

The relationship between the crypto industry and regulators is crucial. Sun describes regulation as a "two-way street" and a conversation between the industry and regulators. By being transparent about the risks and benefits of crypto technology, the industry can help shape pro-innovation laws and regulations that support growth while addressing regulatory concerns.