Following the criminal allegations against BitMEX, the crypto community is debating whether the decentralized financial sector is ready to face the regulator’s anger.
On October 1, the US Commodity Futures Trading Commission announced charges against three BitMEX executives for violating the Bank Secrecy Act (BSA) for poor money laundering and Know Your Customer (KYC) exchanges.
DeFi protocols, including Decentralized Exchanges (DEX), have made it a virtue to have minimal AML and KYC procedures. However, many are now wondering whether DEX is also required to comply with BSA, even though most projects seek to decentralize ownership and governance in their communities.
While many DeFi protocols seem to believe that they can evade regulators when they become completely decentralized, doubts are growing as to whether this is the case – and at least the DeFi protocols have recently been criticized for their highly centralized operation, with 12 of them 15 projects that contain the keys to managing God’s status.
In 25 tweets, angel investor and blockchain consultant Adam Cochran considered a possible cut in BitMEX’s fees for DeFi protocols.
He argued that although the authorities could not shut down DEX directly due to its decentralized nature, regulators could target the main developers who own the control switches and domain providers that host the DEX front:
“If this happens with the protocol, a large number of users will stop using it and will not interact directly with the nodes, which basically kills the protocol,” he said.
“The important thing here is that the protocol is not far from the authority’s reach, there are always pressure points that can be used.”
But Cochran believes the crypto community really should want rules like the BSA to enforce DeFi, adding that “there is a difference between wanting sovereignty and privacy over their finances and allowing criminal activity.”
In response, the Twitter user “toties.eth” said that DEXs are already more compatible than their key counterparts because of their ability to track every single transaction in the chain:
CEX can approve money laundering through its own databases, but this is not the case with DeFi, where every text is open and transparent. DeFi is more traceable than private banks and CEX. ”
Apollo Capital’s chief investment officer Henrik Andersson told Cointelegraph that “given the time it takes to complete this [BitMEX] case, I do not think the DeFi cases will be processed anytime soon.” He added that DeFi projects should remain calm and continue:
“DeFi projects must continue to focus on building a financial infrastructure that cannot be stopped by free and open source.”
Dave Jeavans, CEO of CipherTrace, said he does not believe that DeFi protocols are likely to adopt the rules, but it will happen anyway.
“They will not be able to get away from the rules for long,” Jevans said. “Eyes On.”
CryptoWhale told its 40,000 followers that they believe the regulation will apply to 8,800 projects in the market that “operate illegally and will be shut down”, including DeFi tokens, exchanges and privacy tokens.