KYC identity verification may become necessary during DeFi supervision

Supervision has gradually turned its attention to the world of DeFi. Participants who have experienced explosive growth in the past year and tasted dividends may need to consider regulatory factors in their subsequent investments.

Some head DeFi projects also responded in a shorter time and in a more compliant way : the decentralized world is not a free place in a gray area, and it will gradually embark on a road of restriction with the pace of CeFi. .

Measures such as restricting front-end access, requiring KYC, and requiring users to comply with laws and regulations are being implemented…User responses are also arguing about whether it is sufficiently decentralized and whether it violates the original intention of encryption technology. Let’s take a look at how the project team is responding to changes in the environment:

Restrict front-end access:

In order to adapt to the new regulatory environment, Uniswap restricted access to 129 tokens on the front end of the website on July 24. Uniswap’s original contract has not been modified.

Although these tokens only accounted for a small part of Uniswap’s transaction volume, this decision was not approved by community members, and it also caused many users to complain: “And that’s the end of Uniswap.” Think Uniswap is no longer It is sufficiently decentralized. If token purchases can be blocked from the front-end, other functions can also be changed.

KYC identity verification may become necessary during DeFi supervision

KYC authentication required:

In order to adapt to the regulatory environment and open the door to DeFi for institutions, AAVE will soon launch a dedicated DeFi platform for institutions, AAVE ARC, to provide a private capital pool.

No longer permissionless, both borrowers and lenders using AAVE ARC need KYC to use the loan agreement. Due to restrictions on participation, the final revenue of the private pool may also be different from the revenue of the public pool.

AAVE CEO Stani Kulechov said: “Aave Arc’s larger vision is to enable financial institutions to better adapt to risks before participating in decentralized financing. At the same time, users participating in private and public pools can arbitrage from it, which will also help ensure The private pool of funds maintains similarly high interest rates.”

KYC identity verification may become necessary during DeFi supervision

Require users to comply with regulations:

dYdX actively requires its users to comply with regulations. General counsel Marc Boiron said in an email: “Before all agreements are deployed. We have actively and voluntarily communicated with the CFTC. We have been carefully considering the laws applicable to dYdX. The first agreement developed by dYdX will require U.S. users abide by the CFTC’s retail commodity trading rules.”

The founder stated:

Kain Warwick, founder of Synthetix, believes that global regulation is inevitable. He also tweeted: “Everyone supports a fairer, open and efficient market, so in fact, the goals of DeFi regulators have a high degree of unity. At the moment, DeFi participants need to coordinate this unified goal.” He also called on everyone to shift from fear of regulation to a more optimistic and peaceful attitude.

DeFi is about to “de-Americanize”?

More and more leading DeFi projects have declared in advance, and are actively responding to the gradually tightening policies, and the regulatory rules have begun to put pressure on the steps of “tax payment, KYC, and anti-money laundering” to measure whether illegal finance is involved. Activities may threaten monetary sovereignty. In the Western Hemisphere, the wind of control from the United States is even stronger, and some even joked that DeFi will be completely “de-Americanized” this time.

On August 7, the U.S. Securities and Exchange Commission (SEC), the highest agency in the U.S. securities industry, accused two Florida men of using smart contracts and “so-called DeFi” technology to sell more than $30 million in securities without registration. The securities here refer to tokens, which have voting rights and benefits after purchase, and the focus of the accusation is “unregistered.”

On August 19th, SEC Chairman Gary Gensler pointed out that “regulators may first intervene in some P2P transactions and lending projects, no matter how “decentralized” they say they are.” He also made more radical remarks on the Aspen Security Forum. : “As far as the use of (cryptocurrency) is concerned, it is usually to circumvent anti-money laundering, sanctions and tax laws.” 

According to Gary Gensler’s remarks, even though many DeFi project developers are all anonymous and claim that there is no centralized corporate entity, it has a way to incentivize users to participate and issue cryptocurrency, and it has not achieved complete “decentralization.” It also means that it should be supervised by the SEC.

KYC identity verification may become necessary during DeFi supervision

Gary Gensler, Chairman of the US Securities and Exchange Commission

The scope of vision has expanded, and the infrastructure bill recently voted by the U.S. Senate has caused even greater waves. This bill seems to have nothing to do with cryptocurrency, but there are two amendments aimed at solving cryptocurrency transaction reporting and taxation directly affecting DeFi participants.

The bill hopes to increase the tax on “Broker brokers”, but the definition of “brokers” here is very vague, implying that cryptocurrency participants (miners, LPs, developers, etc.) need to report to the U.S. IRS. Transactions. This is obviously impossible at the moment, especially for DeFi participants. Although the transaction itself can be traced, it is not known who is behind the transaction.

Coinbase CEO Brian Armstrong tweeted dozens of tweets, calling on everyone to oppose the bill, saying that DeFi participants should not be included in the scope of “Broker brokers”, nor should they take the initiative to declare taxes. Smart contracts are only programs that automatically run on the blockchain, not companies. Of course, this is not conducive to democratizing finance.

KYC identity verification may become necessary during DeFi supervision

He also retweeted Musk ’s remarks: “There is no need for a bill to determine the winners and losers of cryptocurrency technology.”

Questions similar to “What kind of role are DeFi participants classified” or “Whether the old regulatory methods are suitable for innovative technologies” are constantly being raised. Most DeFi supporters believe that the purpose of regulation should be the purpose of the new technology, not the technology itself. In early August, Mike Novogratz, CEO of Galaxy Digital, criticized US politicians and regulators for failing to do their homework on cryptocurrency before enacting laws and regulations.

However, financial security and preventing illegal financial risks will always be the gap in front of innovation. The International Anti-Money Laundering Financial Action Task Force FATF updated its definition of DeFi in its working draft in March 2021:

Judging whether an organization is a virtual asset service provider (VASP) needs to be considered from the full life cycle of its products. If an organization provides virtual asset services, even if the service can be operated independently from the organization in the future, the organization is still a virtual asset. Asset service providers need to be supervised.

Similar to the previous SEC Chairman Gary Gensler’s remarks, the “virtual asset service” here can be understood as a smart contract on the chain. According to the content of the draft, even if the smart contract can be separated from the organization, the engineers behind it are all anonymous and need to be supervised. Protect the security of the financial system against money laundering. The more extreme situation is that any user who uses the DeFi protocol to conduct transactions requires KYC identity verification.

Contrary to the United States, Singapore has become a country that bravely embraces change. On August 5, the Financial Supervisory Authority of Singapore (MAS) stated that it has received 170 applications for payment-type cryptocurrency licenses and issued notices to 89 companies that have applied for them. If they meet the requirements of MAS for licensed operations, they will receive Officially granted license.

This move also gives Singapore a chance to become the No. 1 place for cultivating cryptocurrency in Asia. Since 2017, the Singaporean authorities have expressed an optimistic attitude towards distributed ledger technology, believing that blockchain technology can actually improve the settlement efficiency of cross-border financial transactions.

The recent trend from CeFi indicates that more regulatory requirements will gradually penetrate DeFi, starting from institutions to ordinary individuals, compulsory KYC may become the first step.

For this encryption technology that has not been controlled by a single force since its inception, how to better cooperate with regulatory agencies to implement existing regulations on the DeFi platform without affecting the confidence of participants is across the board of its development. One of the biggest problems.


Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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