A California lawyer explained that the true DeFi projects could be able to escape regulatory action but the stablecoins could be in trouble as we are reading more in the upcoming cryptocurrency regulation news.
The California lawyer said that decentralized projects will likely not be the main targets of regulators but the absence of an operator makes Defi hard to pursue. The stablecoin projects could present risks for the broader Defi space according to the attorney. Millions of dollars in one altcoin could escape regulatory consequences because of their inherent structure according to the attorney focused on the blockchain space. The managing director of the legal firm Brookwood said that true defi projects are a different legal issue for lawmakers compared to ICOs.
Hot FUD: A landmark regulatory decision for #DeFi is likely coming that will serve as its DAO Report.
A few players are more vulnerable to regulatory action IMO: (1) Decentralization Flirts, (2) Permissioned Stablecoins and (3) wrapper/offchain custodians.
Thread (1/lot):
— Collins Belton (@collins_belton) August 18, 2020
Belton said that the regulators are looking into two points before assessing any business activity. The first one his holding an identifiable organization that is liable for a crime and the second one avoiding any legal costs that are associated with the violations:
“They take selective action against visible targets with hopes of “making examples” and preemptively deterring future violations. This lets them “leverage up” so to speak.”
In comparison, it should start to be obvious why "truly decentralized" projects aren't ideal targets and often aren't regulators' primary focus. E.g., purpose of securities laws is to ensure material disclosures and information are made for investors to make informed decisions.
— Collins Belton (@collins_belton) August 18, 2020
But within the DeFi space, both of these issues are absent which makes the quite hard target which is not the primary focus of the regulators. An example is Yearn. Finance is the yield farming Defi project which is governed by the community members and therefore has no single operator that can hunt it down legally. This means that the regulators cannot get on the project even if it somehow undergoes a huge disaster affecting millions of dollars locked in the liquidity pools:
“Asking him [Cronje] if he’s bankrupt might be salacious and interesting to some, but $YFI will continue working in its current form regardless of his finances. So, while I could be wrong, I think people expecting regulatory action against some of these experimental, no premine, no upgradeable style projects are probably going to be waiting for a while.”
— Tom Schmidt (@tomhschmidt) August 14, 2020
It’s not all to say that the DeFi projects are in the clear especially the ones that use the word on every conceivable application. Belton said that the “decentralization flirts” or projects that maintain critical infrastructure off-chain and whose team control most of the tokens are similar to ICOs:
“Arguments for normally regulated acts in DeFi are often “we don’t control this system,” but off-chain infrastructure gives regulators potential counters.”
In the meantime, the stablecoins are on the same side as permissioned ones are much easier for the regulators to attack but for now, there’s no such threat or legal discussion about them as well. With stablecoins at risk, the new-age digital farming could be beyond the regulator’s grasp.
DC Forecasts is a leader in many crypto news categories, striving for the highest journalistic standards and abiding by a strict set of editorial policies. If you are interested to offer your expertise or contribute to our news website, feel free to contact us at editor@dcforecasts.com
Discussion about this post