Circle CEO Jeremy Allaire has found himself shocked twice in the past few months by rapid-fire change in his industry.

The luna-UST crash in May stupefied him in “how fast the death spiral happened and how violent of a value destruction it was.”

The collapse of FTX — which has filed for bankruptcy Friday after rocking an already-reeling crypto market — was just as shocking, he said. It also underscores a critical problem in crypto: the growing influence of offshore crypto companies that can operate with little transparency and accountability.

“The offshore situation is a huge issue,” Allaire told Protocol. “You can't see things when they're opaque. There's a reason why there are market structure and market conduct rules. There are reasons why those exist. And they should exist in crypto markets.”

In an interview with Protocol shortly before FTX announced its bankruptcy filing, Allaire talked about the pressing need for crypto regulation in the U.S., the risks posed by offshore crypto companies, and why he thinks the FTX collapse could serve as the spark that convinces policymakers and regulators it’s time to move faster.

This interview was edited for clarity and brevity.

You described the last crypto meltdown involving luna and UST as a fast and violent value destruction. How does this latest crash involving FTX compare?

I think it's very comparable. It's astounding and shocking and disappointing, obviously.

You also said that with the luna-UST crash, there were signs about what could happen, that you could see it coming. Is it the same thing with the FTX collapse?

Not clearly; it was a lot harder to see. There are several really key takeaways. One is the problem with offshore operators. This is the reason why policymakers in the United States should be focused on putting a clear regulatory framework in place that builds safe markets in the United States and doesn't have people moving into opaque jurisdictions.

You have weak regulators or nonexistent regulators in certain cases. When you don't have enterprise risk management, clear public audits, clear separations of roles and responsibilities, when you don't have the rigor of being a regulated financial institution, all of the moral hazards that exist in financial institutions can go wrong.

It's one of the reasons why we have always been regulated in the United States. It's one of the reasons why we are in the process of going through becoming a public company. It's one of the reasons why we invite significant scrutiny on what we do.

I think the offshore situation is a huge issue. You can't see things when they're opaque. There's a reason why there are market structure and market conduct rules — the separation of banking and capital markets, the separation of proprietary trading and exchanges. There are reasons why those exist. And they should exist in crypto markets.

I think there's an opportunity immediately in front of us to address these. There's actual legislation that attempts to address these and probably should go further — like stablecoin issuance should not be something that exchanges do, just like banks shouldn't run capital markets.

You have [SEC] Chair [Gary] Gensler for quite some time talking about conflicts of interests that might exist between different roles in the market, within firms. He's been very public about that as a real issue and a risk.

People talk about CeFi [centralized finance]. CeFi without regulatory frameworks around it is banking and markets with all the moral hazards without regulation. That's essentially what you're talking about.

In many ways, one of the big takeaways here is that CeFi is higher-risk than DeFi because CeFi is opaque and most of it is offshore and unregulated. It's dominated by a completely unregulated company. No one even knows what jurisdiction they operate from.

CeFi is opaque. DeFi is actually public and transparent. All the rules, all the liquidations, all the risks, everything, it's all publicly visible.

The whole promise of this whole problem space, if you recall, came out of a reaction to the global financial crisis. We had these opaque financial institutions that had all of this risk that no one could see [or knew] existed. That led to overleverage.

The promise of blockchains was [they were] public, open, transparent, auditable. You could construct a safer and ultimately more open and more inclusive financial system on this technology. Ironically, some of the biggest businesses that have been built depend on opacity and, frankly, have all the moral hazards that have existed in traditional financial institutions.

If we move forward in a world where more and more activity is on-chain, where more and more activity is conducted on public ledgers, where you can have verifiability, you could have proof of reserves, you can have publicly disclosed risk management — you can even build models where you can have privacy but also enable auditors and regulators to have visibility as needed — so many things that can be done that actually can construct financial services that are safer.

I think that's going to be ultimately the biggest lesson that comes out of this. We need policy. We need regulation. We need intermediaries to follow the clear frameworks that are needed to address the different types of risks that exist. We need that. We need that fast.

How has the FTX crash changed your relationship with and your view of other key players in crypto that are based offshore, like FTX and Binance?

I think it's critical that major jurisdictions have a consistent and clear set of regulations around crypto assets, crypto markets, stablecoins, and these key pieces. You have that being put in place in Europe. You have that being put in place in Singapore. You have real proposals in the U.K. You've got bills in Congress in the United States. It's really key that we have that. And for these offshore players, they need to operate by the same standards, by these higher standards.

Crypto needs to be held to a higher standard. We believe that very firmly. We try to hold ourselves to very high standards ourselves. We think that if we do not hold crypto to a higher standard, we are going to continue to have these disasters for people and businesses and others.

We ran a big conference, Converge, a month or so ago. It was great. We had 2,600 people, tons of companies. The exciting thing was they were there not because of bitcoin, not because of speculating on crypto assets. They were there because they were focused on how to build real world-utility around dollar[-based] digital currencies. What becomes possible with this infrastructure?

The whole message was we have to move from the speculative value phase to the utility value phase of this industry. I think the speculative value phase has had people focused on what's the price of bitcoin? How big are these exchanges? And the incentive systems that come along with that, especially offshore unregulated variants of it, created I think these really, really high-risk environments for people.

The utility value phase’s focus isn't going to be on these trading markets and the price of bitcoin. It’s going to be focused on what people are building that is delivering utility to people and households and firms around the world.

I hope that more of the focus turns towards enabling that, and I think policymaking and regulation is actually a huge part of what helps foster that transition.

You tweeted the point about your concern with offshore players, as part of a thread that involved Coinbase CEO Brian Armstrong and Ripple CEO Brad Garlinghouse. Is there a coming together on this point when it comes to dealing with regulators?

This has been a consistent theme from major industry leaders in the United States for a long time. The lack of tailored, specific statutes and rules for the digital asset ecosystem in the United States has led to huge amounts of uncertainty, regulation by enforcement, not having clarity, and people feeling like they have to do things outside the United States.

We have chosen the hard path of doing things in the United States with regulation, doing it the right way. Frankly, I think that's paying off for us. We're thriving as a company right now. We've built a very, very significant and important business. I think we're proof that you can hold yourself to a higher standard and grow and thrive as well.

Were there practices that FTX and other offshore crypto companies have embraced that you felt were problematic? You were critical of Binance’s decision to convert USDC to BUSD. There are a lot of interconnections between U.S.-based crypto companies and those based overseas. Has what happened with FTX giving you pause when it comes to dealing with other similar companies in the industry?

It's a good question. I think everyone in this industry needs to be focused on greater transparency, being accountable to standards of supervision and risk management and compliance that are expected from global scale financial institutions. If you're a global-scale financial institution, you should be held to extremely high standards of supervision of audit of compliance of risk management.

We read stories recently about billions of dollars of sanctioned money flowing through various venues. How can that happen? We don't know all the details of what happened yet with FTX, although we're reading more and more. There's a lot of speculation.

But we [at Circle] have a vice president of internal audit who reports to our board of directors. We have enterprise risk management that is documenting every dimension of risk in our company and holding everyone to those standards and working with external auditors on everything from cybersecurity to financial crime risk.

There's just so much that goes into building a significant financial institution. I just don't know if any of those things exist in any of these offshore companies. I just don't know.

The people said to be directly affected are outside the U.S., since FTX and Binance are not allowed to operate in the U.S. — even though they have affiliated companies in the country. U.S. regulators could argue that the restrictions, even though they’ve been described as vague and inconsistent, protected U.S. investors and consumers.

These are deeply connected markets. The impact of these operators has been trillions of dollars of losses. How many people and businesses and institutions in the United States are harmed? A huge number in all of these cases.

Even though the exchanges are operating offshore ...

When the reckless behavior of an offshore exchange causes giant liquidations that cascade through the market and causes people in the United States to lose huge amounts of value, that's harming people in the United States whether they're using that product or not. They're globally integrated markets.

There has to be unified approaches to this around the world. These are common markets. They're deeply interconnected.

People like Gary Gensler and CFPB Director Rohit Chopra say they are doing something based on existing law.

There has to be new law. Digital tokens need to be classified and defined. Digital assets are a new class of financial instrument. There are currencies that are digital monies like USDC. There are things that clearly would be deemed to be securities. There are things that are somewhere between a commodity and a security. There are things that go through the lifecycle as they evolve.

I think forward-looking jurisdictions are starting to define a token taxonomy and define these and then align those with the appropriate supervisors. But write new rules. If you want to register a token, how do you do that? What are the disclosures? It's not an equity in a company, but you probably need disclosures. There's very much the need for tailored policy here.

The technology enables a lot of new things. This is a space where you’ve got to write new rules. This is, in my view, a failure of Congress. This is a failure of Congress because at the end of the day, we need new rules. Congress has to step up.

This crisis has been described as a setback for lobbying that would lead many politicians and policymakers to pull back.

I don't agree with that. In fact, if you look at what's being said today by House leaders, by members and some of the staff, they're leaning in hard. I think it's going to be the opposite. I think it's going to create higher conviction.

Now, you can take a cynical view and say, “Well, people were only paying attention because there was money being given to campaigns.” I don't buy that. The White House press secretary today made a statement that we need to regulate the crypto industry. It's now a White House press secretary issue, which says something. I think you're going to see a lot of work. You're probably going to see a lot more hearings. I think you're going to see real motion, not a pullback.