As regulators begin to circle, the DeFi industry rethinks its strategy

The supervision has officially issued a risk warning, don’t be injured by DeFi!

The situation in 2020 is not good, but one thing is very good: Decentralized financial DeFi. This industry is booming this year. Although the DeFi boom has always appeared frequently, the broader DeFi industry seems to have formed a strong momentum and will prove to be no longer a flash in the pan.

But those who hope that the DeFi party will continue to be hot until next year may be disappointed-regulators are expected to enter this once under-regarded industry.

These are the conclusions of attendees who attended the summit of V20 crypto industry leaders and regulators last week, including FATF, the U.S. Department of the Treasury, and the Japanese Financial Services Agency.

Although on the opening day of the V20 summit, FATF has already made a big splash in the P2P encrypted trading platform industry, and the DeFi world seems to be firmly targeting it.

Jonathan DeCarteret, CEO of INDX Capital, a crypto investment fund specializing in masternode investment, said in an interview with the media that the industry generally believes that “strict regulation” will have a catastrophic impact on this emerging industry, and “may be overnight. Disrupt DeFi in time”.

DeCarteret participated in a closed-door V20 panel meeting entitled “Leveraging P2P: Managing Anti-Money Laundering/Combating Terrorist Financing and Decentralized Financial DeFi-related Risks”. Other participants included Tyler Spalding, co-founder of crypto payment expert Flexa.

But Spalding told the media that DeFi insiders are united and they are trying to find a way to keep the regulators motivated.

He said: “Although there are new opportunities and processes within DeFi, there will definitely be a method compatible with the existing regulatory framework.”

DeCarteret suggested that, instead of creating a new set of protocols and standards (like the travel rules compliance solution for crypto exchanges), DeFi insiders, including members of the V20 team, agreed that their recommendations are “guided by best practices” Self-regulation”.

DeCarteret said that there is a feeling that, led by the decentralized autonomous organization DAO, “anonymity and peer-driven protocols will be extremely difficult to manage.”

Crucially, however, the FATF does not seem to agree with the view of decentralization, DeCarteret added, “FATF believes that someone always holds the key.”

Spalding added that “to a large extent” market participants “have enthusiastically supported the establishment of a compatible and meaningful ecosystem”, especially those represented in the V20 group.

But now, DeFi seems to find itself at a crossroads.

DeCarteret explained that experts have divided opinions on whether supervision should focus on restricting supervision to the process of import and export of fiat currency, or should seek supervision of private keys.

Spalding said: “I think the road ahead is clear.”

“The easiest and most effective way is to ensure the proper switching ramp of digital assets.” It is impossible to completely monitor or execute transactions in a decentralized network, which is similar to the current global cash-based system . By ensuring that users entering and exiting these networks comply with appropriate regulations, most illegal activities can be effectively mitigated. ”

But DeCarteret proposed a different course of action. He added, “This problem will be very difficult and complicated to solve.”

“Regulating the legal currency import and export ramp does not solve any impropriety or incompetence at the protocol level.” Similarly, enforcing rules at the protocol level will undermine DeFi. I proposed the Know Your Customer (KYC)/AML version of the private wallet needed to interact with the DeFi protocol. ”

DeFi defense

No matter which method the industry decides to adopt, the ball is always firmly in the vision of the industry-before FATF and friends start shooting for DeFi, the main players are now facing a time battle.

With more than $14 billion in funds currently “locked in the DeFi agreement”, DeCarteret admitted that “it will appear on the radar of regulators.”

It will be difficult to see the crystal ball next year. You will not see anything except crazy activities, but DeCarteret claims that regulation will bring big fish into the swimming pool, and many mainstream financial industry participants are already watching what is coming.

DeCarteret said: “The prospect of accepting cryptocurrency regulation as a recognized asset will accelerate institutional adoption. The opportunity becomes too great to be marginalized.”

He said: “Encryption regulation will be seen as an acceptable asset, which will accelerate institutional adoption. The opportunities are growing and should not be ignored.”

At the same time, both Spalding and DeCarteret seem to realize that in addition to seeking to solve the problems of the entire industry, it is necessary to keep their ships in order.

Spalding stated that in order to manage these risks, his company has taken measures to explain that KYC Flexa’s necessary licensing and use/AML personal and corporate standards are for each jurisdiction to facilitate retail transactions: “In addition, the Flexa network Entities, such as communication, payment and point-of-sale providers, also hold relevant licenses.”

DeCarteret said, “INDX has built its business as a compliant offshore tokenize that meets regulatory requirements to deal with these regulatory risks.”


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