02 Oct 2020 Anthony Lehrman
Charges Against А Crypto Exchange May Harm The DeFi Sector
The decentralized finance (DeFi) sector became appealing as users have less KYC and AML related requirements to meet. However, the crypto community is debating about whether the DeFi ecosystem should also be under regulations, despite the decentralized nature of the projects.
Many of the DeFi projects believe that the full decentralization of DeFi protocols can make them evade regulators. It is still debatable to what degree this information is completely true. However, it turns out that 12 out of the top-15 DeFi projects are operating with a high degree of centralization, with the projects still keeping the “God mode” admin keys.
One of the biggest concerns among decentralized exchanges (DEX) is if the exchanges have to comply with the Bank Secrecy Act (BSA), which gives the Office of the Comptroller of the Currency (OCC) the right to prescribe regulations, conduct supervisory activities and, when necessary, take enforcement actions against entities with weak anti-money laundering security.
On October 1, another regulatory body - the U.S. Commodity Futures Trading Commission, raised charges against BitMEX executives for violating the OCC’s BSA Act.
Аngel investor and a blockchain consultant, Adam Cochran, published a 25-post thread on Twitter, explaining why the recent BitMEX charges may be a crucial blow to DeFi protocols.
“So a lot of Crypto Twitter doesn't understand why today's news isn't just bad for CeFi but is also bad for DeFi. It has something to do with legal nuance and a little something called the "Bank Secrecy Act" (BSA),” Cochran tweeted, further explaining how authorities cannot directly shut down decentralized exchanges. However, regulators may take legal actions against the core developers and domain providers.
Cochran noted that if such a scenario happens to a protocol, “a large bulk of users would stop using it and not interact with the contract directly, essentially killing the protocol.”
“The takeaway here is that a protocol isn’t outside the reach of the government, there is always pressure points that can be applied”, the blockchain consultant concluded.
However, Cochran believes regulations are needed for the crypto community, as “there is a difference between wanting sovereignty and privacy over your funds versus enabling criminal activity.”
Meanwhile, Twitter user "tendies.eth" stated that decentralized exchanges are already operating under greater regulatory compliance when compared to centralized exchanges, due to their ability of on-chain transaction tracking.
“CEXs can enable money laundering through their private databases but this is not true for DeFi where every tx is public and transparent. DeFi is much more trackable than private banks and CEXs”, tendies.eth stated.Cryptocurrency Crypto Market Exchanges News crypto market monitoring exchange decentralization Exchanges Regulation BitMEX Regulations Defi Decentralized Finance Decentralized Exchange