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It seems that governments are increasing their regulatory efforts after what happened with Russia "evading sanctions" and the recent Terra/LUNA crash. Day by day, we're seeing centralized exchanges requiring additional information in order to comply with KYC/AML as much as possible. There have been rumors that governments will target decentralized exchanges (DEXs) to require them to comply with KYC/AML laws. While we know this is impossible at the technical level (due to the decentralized nature of such exchanges), it's easy enough to prosecute the developers if their identities are publicly known across the web. A decentralized exchange requiring KYC will greatly defeat crypto/Blockchain tech's purpose in my own opinion. It will bring back the middleman which is the single point of failure crypto was meant to avoid in the first place.

What do you think will happen with DEXs if governments require them to comply with KYC/AML laws? Will they cooperate or not? If they don't comply, will that mean using a DEX be considered as an illegal practice? Your input will be greatly appreciated. Thanks in advance. :)

Of course, governments or regulatory bodies around the world have been targeting exchanges specially CEX and it seems that they are successful. But with the Luna debacle, it just gave them another reason to chase DEX. However, it is still how they are going to implement it as we all know that it's not or at least hard to because of DEX protocols. So it shape everything, as DEX should be anonymous by nature.

nothing happen with dex and it will make dex become very strict to the its users. KYC/AML was not a new thing. This is a common thing that may come soon. it's just the matter of time until dex may be forced to implement KYC



They will and why not? rather than going to the jail or pay some fine to the regulators. The worst thing if the platform may be shutdown by the government. IDEX has been giving us a very good example when government was forcing dex

Without any doubt, governments will force all cryptocurrency exchanges to comply with KYC/AML rules. It's just a matter of time. All exchanges are located on the territory of certain states and for their functioning they will be forced to obey the established rules of this state. Otherwise, they will be forcibly closed. The state and its government have many levers of influence on any business structure. Moreover, the KYC / AML rules are issues of global security and their observance is controlled by specially created interstate structures such as FATF and the states themselves are forced to obey them.

If its real DEX not the pseudo then it will never possible for the governments to enforce them to do anything because literally the users are not creating wallets they are simply interacting with the smart contacts right?

Idk the idea of them asking for KYC/AML instead of educating people about the risks of investment and that said losses in investments is something natural, whether it be due to natural market movement or being rug pulled seems to be a much better idea.

Anyway if it was really forced, maybe existing ones would need to comply or close down but there would surely be DEX's out there that would pop out that would avoid or not comply at all. It'd be illegal depending on the law, but they might find a middle ground or something about the creation of the law.

Decentralized exchange site has no chance other than to comply with the regulation. We have learned a lot from what happened with etherdelta. The government was sued etherdelta creator and yeah it's dead. Dex will have the same faith like etherdelta if these dexs were not comply with the regulation.

You did or you gone to the jail. Even if the platform already announced to be decentralized but it's having developers behind it that can be traced by the government easily.

So, learning from the past experience was good rather than against the regulation.

Honestly, I still find it difficult if dex forces to do KYC on the government, there are lots of fake dex that can be misused by people to wash their identity, this is what I'm really worried about. well it may take some further steps to qualify for a valid verified DEX. and many people can't tell the difference between real or fake DEX, now a lot of DEX's have been hijacked and misused, real DEXs always give notifications on top of their DEX being hijacked, please pay attention

It's possible and it will depends on the DEXs itself, I don't put any hope to DEXs which run in shitcoins chain e.g. ETH, BNB, etc since the chain is already centralized lol. What you're expecting from them? Binance have offer No KYC for 2 BTC trading per day, after SEC force them to force all the clients to complete the KYC level 1, he do it otherwise his project might got shutdown or limited for some jurisdictions.

It's possible.

We've seen one before, IDEX.

That's why if there will be laws that will push to ask KYC even as a decentralized exchange, you've said the possible scenario that might happen as the authorities will just go through the developers.

If the developers don't cooperate with the authorities, they'll give a warning and then eventually shut down the dex.

Users may be interacting with smart contracts, but most DEXs (if not all) have a web interface that's hosted on a centralized server. If they don't comply with KYC/AML laws, governments can easily take down the server for good. Only tech-savvy people or those with a little knowledge about smart contracts, will be able to still use the DEX directly after this happens. But the average person doesn't know this, so shutting down the web interface would mean bringing down mainstream adoption for good. This will be a never-ending battle as governments try to prevent people from using crypto as much as possible.

Decentralization needs to prevail in order to curtail governments efforts against freedom and financial independence. As long as decentralization wins, it will be impossible to enforce regulations at will. Just my thoughts ;D

They will.

Take a look at this:

1. https://github.com/pancakeswap/pancake-frontend/blob/86a46baddeeee01c02cdf6cff4b1ec2abeb70ea5/src/pages/_middleware.ts
2. https://github.com/Uniswap/interface/blob/main/src/constants/tokenLists/unsupported.tokenlist.json

Both platforms are blocking some countries or some tokens for whatever reason. Why would they stand against KYC/AML if it being forced? I don't see they will fight back about the regulation, and will happily comply to get out of the trouble.

Arguably, you can say that the underlying of the trading protocol itself is decentralized, but in the altcoins world, I don't think most people really bother to run nodes on their own. And here comes another problem, the third-party node/endpoint/api platforms. Let's say in case the DEX won't comply, well those third-party platforms can manually block or censor, a specific address that is unknown since they operate in a centralized way and surely will comply with the current regulations.

see that the government wants to achieve or cover everything, so if DEX is forced to follow existing regulations, then it is possible.
However, this will be a big loss for DEX, because when DEX has rules for doing KYC, I really believe that people will choose CEX over DEX. the reasons are many for that. I understand that this is for the security of users in transactions, but this can be detrimental to many parties. however, I rarely use DEX, but it's quite useful for selling coins that are not listed on CEX.

@Abiky. They can force the people who use the protocol through the front end to KYC, however, there is nothing the SEC can do if more experienced users can interact with the smart contracts directly or if another anonymous development team forks the front end to not force users to KYC. The SEC is powerless in Defi unless they have the ability to order all the different layer 1 blockchain platforms to shut down.

They can prosecute the popular front end and devs, but community can make more frontends to make these smart contracts function.

Uhh? Was Luna a DEx? I guess not, I think its people's choice to use DEX or not so even if a new law comes that DEX should go through KYC I don't think it will be effective, DEX will have to operate in a country where all these laws are powerless and also most DEX has invincible team, good luck to SEC or Government working this out.

Governments will forbid their citizens to access DEXs once the laws relative to this matter pass on the legislative houses. Anyway, I don't think they will go after DEXs and the people operating the exchanges, rather they will go after the citizens of their countries who will keep insisting in using such services without the permission of the regulators. While it's going to be stressing and annoying for many crypto enthusiasts, it's also going to be an opportunity for countries to attract new investors and residents for their territories, by adopting friendly approaches towards crypto and its services. I expect this from countries which have weak economies and want to be developed and independent from the titan nations of the world, but lack financial resources and labor force.

The government wants to control everything, because it sees this as a threat to its existence. And there is no doubt that they will direct their efforts to comply with the laws by decentralized KYC/AML exchanges. But now it is impossible to say how long this process will take. But nevertheless, already now we see how Uniswap blocks transactions for wallets that are sanctioned.

DEX trading is basically peer-to-peer trading (incorporated with Automated Market Maker (AMM) for most platforms), while CEX trading involves a third party coming between the trades. IMO, CEX qualifies more for government intrusion because of the third party involvement. Though government have the power to intrude on DEX trading but the platform is designed such that there is no third party interaction. The KYC will be meant for the owners of the platform not the users. However, if DEX platforms becomes fraudulent, then there will be more chances of government coming in to impose regulations.

That sucks. I've thought crypto/Blockchain tech was all about decentralization and censorship-resistance. Blocking access to some tokens would make the aforementioned "DEXs" no different than any ordinary centralized exchange. While it's still possible to trade directly via smart contracts, not everyone knows how to do it. With censorship on the web interface, governments will be able to successfully enforce KYC/AML laws. That wouldn't had been possible if the interface was hosted on an alternative network that's decentralized by design (eg: Maidsafe, ZeroNet, etc.). Regulations seem to be increasing in the crypto sector, so we haven't seen the worst yet. Who knows what will mainstream governments do next? Just my thoughts ;D

After the Terra/LUNA incident, governments started to take regulation/KYC/AML issues more seriously. Looking back, I can say that they were right. Although it is contrary to the blockchain structure, I think there should be a control mechanism.

That's the thing. In order to gain censorship resistance for using the platform, users must run their own node and use the DEXs app in their own local environments.

Actually, noting the link I mentioned, if users just run the app on their own or visit via decentralized/IPFS web without directly editing the code, they are still using the censored/restricted/blocked codebase.

So it is necessary, that in the worst case scenario, the interface must be forked in order to remove the code that contains to blocks some specific countries or tokens.

Well, people aren't that tech-savvy or knowledgeable about crypto to set up their own node in order to use DEXs freely without restrictions. They will take the easier approach (which is using DEXs directly through third-party APIs) than all the other way around. It's a good thing DEXs are open source, or we would've been toast by now. Expect regulations to increase in order to prevent as much people as possible from gaining access to the world of crypto. The Russia "sanctions evasion", money laundering activities on the Blockchain, and the Terra/LUNA collapse will be the perfect excuse for governments to increase regulatory pressure.

At the core level, people will still get freedom thanks to the decentralized and censorship-resistant nature of crypto/Blockchain tech. But don't expect everything else to be the same (especially centralized exchanges) because of the reasons mentioned before. I have no problem with increasing regulations as long as decentralization wins in the long run. Just my thoughts ;D