Could DeFi Growth be gimped as US Regulators turn their sight on Decentralized Exchanges?
There has been clear targeting of CeFi attacks of late, centralized finance, specifically with centralized crypto exchanges.Recently, the US Commodity Futures Trading Commission (CFTC) charged the owners of BitMEX crypto exchange, for allegedly operating an illegal exchange, facilitating unregistered trading transactions, and violating rules.
Shortly after this, BitMEX withdrew a large amount of Bitcoin, worth around $400 million out of the BitMEX exchange.BitMEX owners have announced their intention to fight the US CFTC charges.stating,
“We strongly disagree with the US government’s heavy-handed decision to bring these charges, and intend to defend the allegations vigorously.”
Despite t his, and despite the fact that BitMEX is not even a US company, and despite the fact the CEO does not even reside in the US, the CTO was unfortunate enough to live and reside in the US, so he was arrested.
This is scary.
The long arm of US law doesn’t stop at its borders, as John McAfee has also been arrested in Spain and has been charged with the United States Department of Justice for tax evasion.
Investigations by the United States Securities and Exchange Commission (SEC) revealed that McAfee made over $23.1 million from recommending the cryptocurrency offerings on Twitter.
The Federal prosecutors for the IRS want their pound of flesh.
This has effected the Crypto markets and has created real issues in the fluctuation of the price of many DeFi tokens that have plunged drastically in the past few weeks, specifically with the decentralized Uniswap UNI token and Yearn.finance (YFI) token plunging over 38 percent.
Even Uniswap’s hard fork that became Sushiswap, the SUSHI token plunged even further, over 52 percent in the past week.
Is DeFi immune?
I know there are many DeFi elitists that are pure, and above the CeFi rabble.DeFi elitists don’t KYC/AML and they don’t deal directly with CeFi exchanges.Don’t tether their crypto wallets to their identity and many have even been successful of not requiring a fiat on or off ramp to live and trade, as this can be done serendipitously through amazon gift cards, and finding crypto friendly landlords or crypto amicable gas stations, or mom and pop grocery stores that are fine with a crypto only business.
But regulators want to control the entire financial flow.While I am fairly certain the regulators will be unable to fully regulate the sheer abundance and technological depth of the DeFi territory as the technology that underpins of DeFi are self regulating, according to the smart contract code and it would be cumbersome to devise a way to audit code that already audits itself without creating their own coin which is known to be monitored and less desirable by the public.
Regulators can still rally and claim that decentralized exchanges allow terrorists, drug dealers, and child pornographers to conduct transactions and lack mature anti-money laundering policies, like the current established banks have, like JP Morgan Chase , Wells Fargo , and Bank of America .
Good News
The good news is regulators may not be able to unravel effectively the entanglements of properly secured DeFi technology.Since not all wallets are attached through KYC/AML, and not immediately indexable, already semi-anonymous addresses coming online can be changed and mixed, the coins themselves can be moved to buy another more secure coin like BTC (Bitcoin) to buy MXR (Monero) and then Buy ETH (Ethereum).Add to this personal safeguards taken by the user, of TOR/VPN/Encryption combinations and personal Lightning Nodes.
Bad News
But the bad news is regulators can go after public web entry points that reside on public servers which can be seized or shut down.
This can have the unfortunate side effect of preventing the majority of non-technical users from participating in DeFi, which is really bad since they are the majority that will give more liquidity to the crypto pools.This may not affect more technical users that can interoperate through smart contracts without the web interface, to the same degree, but the majority of users do not tend to be that technical in most cases and its the majority of users that will influence the majority of crypto acceptance.
Add to this the bad actors already in the crypto space and the recent scams, including the exit scam rumors that were created due to Chef Nomi’s poor handling of Sushiswap, and the recent UniCats scam could hinder the DeFi growth and give more popular vote to the general public for regulation of the DeFi industry.
So what is the solution?
Ultimately, the best solution is to continue to learn about the nuances of the technicalities of the crypto space.The levels on this are Good, Better, and Best.
Good
Move your capital off CeFi exchanges, do not submit KYC/AML, and use by default TOR/VPN/Encryption combinations when interacting with crypto transactions.
Better
Everything in Good, and actually researching DeFi projects, white papers, and github accounts, learn to tell between the hype train to reckt city, avoid the fomo tactics that would induce you to buy high and sell low.
Best
Everything in Good and Better, but understand the code mechanics to continue to participate in the DeFi ecosystem even if the front end public entry point sites are seized and taken down.
Learn to code the actual smart contracts on a command level.
If you are at least participating in the DeFi ecosystem, you are already ahead of the vast majority of CeFi users and mostly out of range of the current regulations.But I would encourage everyone to go deeper, do your own research, know the DeFi projects and how they will affect the DeFi ecosystem.But most importantly, roll up your sleeves and learn to code the damn thing, or at least read and understand how the code works.
Because in the end, the code is the only law the Blockchain knows..
