Why the BitMEX charges could be bad news for DeFi


In the aftermath of criminal charges against BitMEX, the crypto community is debating whether the decentralized finance sector is also set to face the wrath of regulators.

On Oct 1, the U.S. Commodity Futures Trading Commission announced charges against three BitMEX executives for violating the Bank Secrecy Act (BSA) due to the exchange’s allegedly weak anti-money laundering and know-your-customer (KYC) policies.

DeFi protocols, including Decentralized Exchanges (DEXs) have made a virtue of having minimal AML and KYC procedurs. However many now wonder if DEXs are also obliged to comply with the BSA, even though most projects seek to decentralize ownership and governance throughout their communities.

While many DeFi protocols appear to believe that they can evade regulators simply by becoming fully decentralized, there are increasing doubts as to whether this is true — and in any case, DeFi protocols have come under fire recently for operating with a high degree of centralization, with 12 out of 15 top projects maintaining ‘God Mode’ admin keys.

In a 25-post Twitter-thread, angel investor and blockchain consultant Adam Cochran examined the potential fall out from the BitMEX charges for DeFi protocols.

He argued that while authorities cannot directly shut down a DEX due to its decentralized nature, regulators could target the core developers who hold the admin keys and the domain providers hosting the front-end interfaces of DEXs:

“If that happened to a protocol, a large bulk of users would stop using it and not interact with the contract directly, essentially killing the protocol,” he said.

“The takeaway here is that a protocol isn’t outside the reach of the government, there is always pressure points that can be applied.”

But Cochran believes the crypto community should actually want regulations like the BSA to apply to DeFi, adding that “there is a difference between wanting sovereignty and privacy over your funds vs enabling criminal activity.”

In response Twitter user ‘tendies.eth’ argued that DEXs are already more compliant than their centralized counterparts due to the ability to track every last transaction onchain:

“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.”

Chief Investment Officer at Apollo Capital Henrik Andersson told Cointelegraph that “considering the time it took to bring this [BitMEX] case, I don’t believe DeFi cases will be brought in the short term.” He added that DeFi projects should essentially keep calm and carry on:

“DeFi projects need to continue focusing on building unstoppable financial infrastructure by free and open code.”

BitMEX CEO Arthur Hayes certainly believes regulators will set their sights on other exchanges and DeFi protocols in the near future. He told CZ from Binance, Justin Sun from Tron, and Sam Bankman-Fried of FTX and SushiSwap “Don’t laugh, you dumb f—-s are next.”

CryptoWhale told his 40,000 followers that he believes regulation is coming for 8,800 projects on the market “that are operating illegally and will be shut down” including DeFi tokens, exchanges and privacy tokens.

Products You May Like

Articles You May Like

Stablecoin Economy Sheds Another $3 Billion in 44 Days
US gov’t $1.5T debt interest will be equal 3X Bitcoin market cap in 2023
Bitcoin will hit $200K before $70K ‘bear market’ next cycle — Forecast
Bitcoin eyes $25K as BTC price nears best weekly close in 5 months
Shiba Inu Vs Bitcoin – Which is better for investment?

Leave a Reply

Your email address will not be published. Required fields are marked *