DeFi Isn't the Answer to Crypto's Regulatory Issues

October 5, 2020 10:21 AM
Decentralized Finance

Decentralized Finance





Crypto is mixed this morning as the space remains mostly range-bound. Volumes are compressing with spot activity about 50% of where it was this time last week.

Crypto Story of the Day

Since the U.S. government charged BitMEX last week,  a narrative has emerged which essentially paints DeFi as a solution to such regulatory issues. We believe this is the wrong way of thinking and view DeFi as just another temporary regulatory work-around attempt.

The narrative emerging is along the lines of, “the way to offer complex, leveraged, crypto-based financial products to retail is through decentralization.'” The idea is based on the fact that because regulators have deemed certain corners of crypto, such as bitcoin (BTC), “decentralized.” The regulators have said they will not pursue individuals with charges, this would follow to decentralized exchanges (DEXs) and some of the new yielding platforms. We think this is a fallacious line of thinking. The DEXs themselves are far from being qualifiable as decentralized and furthermore, most of the underlying protocols such as Ethereum and others have even been criticized for their centralization.

Initially, BitMEX's use of BTC as the sole currency on the platform was seen as a realistic regulatory work-around making them an off-limit target. That was clearly shown to be wrong last week as it was when some investors thought initial coin offerings were exempt from regulatory intervention. Ultimately, regulators have shown that they will prosecute anything that smells within their jurisdiction. The idea that DeFi is the solution simply because it isn’t being prosecuted right now is the same false assumption the crypto ecosystem has continued to make.

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FRNT Financial is a technology and sales layer that offers institutional and accredited investors access to various forms of exposure to crypto-assets. You can subscribe to FRNT Financial Morning Note at