In a clamor to become the most adoptable, biggest corporate-friendly cryptocurrency on the market, we may see certain projects lose sight of what the technology was built to do.
At its crux, cryptocurrency can be the greatest medium to rapidly democratize financial systems (and many more). This is a perk which should inform decisions on how these systems operate.
Regulation could make crypto more palatable to mainstream financial institutions. But it is perhaps controversial to legitimize cryptocurrencies as an asset class, for the risk is that this will change the very DNA of the industry.
How concerned are gargantuan financial institutions with protecting censorship resistance and decentralization?
Simply put, in almost all cases they don’t care.
Regulatory uncertainty is seen as a bigger barrier in finance circles to entering into the space. But they are increasingly looking to crypto as a way to diversify holdings.
This regulation should not come at the cost of the very principles which form the core of cryptocurrencies: they are decentralized, so no one entity has total control, and they cannot be altered to stop the flow of information.
If regulation was to change how crypto works then we have lost the ideological battle. Cryptocurrencies would be replaced by a zombie; while it looks and acts like the same thing, it’s irrevocably changed.
It’s in this context we must consider what role DeFi has to play in the next digital age.
Mainstream financial institutions do not tend to look favorably upon true DeFi, and regulators are targeting these projects due to the risk to consumers seeking to navigate the nascent industry.
The illicit flow of cryptocurrency, not exclusive to the DeFi space by any means, cannot be simply stopped by laws. Know Your Customer (KYC) standards can be put in place but easily circumvented by hackers. You make it harder for consumers to use the technology at the same time as doing nothing to stop mal actors.
A light touch might be the best route to take. For example, greater transparency could be a boon for the industry. Allowing regulators and financial institutions to control the narrative and implement measures to make cryptocurrencies less decentralized would be a very bad thing indeed.
Instead, a safer industry can be achieved through intelligent regulation which does not compromise the crucial values of crypto.