Bitcoin Forum

I've read somewhere that the US proposed regulating "De-Fi" protocols. It wants to treat them as "Ce-Fi" by requiring developers to implement KYC/AML rules. This means you as a user will be forced to verify your ID to use a decentralized lending protocol, staking service, or even an exchange such as Uniswap or Pancakeswap. Would you imagine this becoming a reality in the near future? It would be disastrous! This would greatly defeat "De-Fi's" true value proposition which is eliminating the middleman from the system.

With the way "De-Fi" was designed, I hardly doubt the US government will be able to succeed in its efforts to regulate it for good. But knowing that they did sanction a decentralized mixing software like Tornado.Cash, tells me that we should not underestimate the government.

What are your thoughts? ???

I doubt there is any way to implement KYC on decentralized exchange like Uniswap but definitely possible to implement on projects because it happened in the era of ICO and defi is just the similar version of it I mean those defi projects which are mostly relying on the ethereum network which switched to PoS already so the decentralization is already a big question when it comes to Dapps so it can be added to the list as well.

Why I feel it is not possible to implement on exchanges because it doesn't operate under any countries guidelines since its completely the trades are actually peer to peer based on smart contracts unlike the traditional exchanges so if governments wants to regulate then they need to restructure their entire regulations.

The way De-fi protocols are designed, it will be extremely hard to regulate it. But while it's hard, it's not impossible. But my fear is different. If US government cannot technically regulate it, they will do everything they can to block it from functioning in US.

https://www.coindesk.com/policy/2023/07/19/new-us-senate-bill-wants-to-regulate-defi-like-banks/

This one talks about this matter in details. Just not sure how it will be implemented.

Government would likely less trust defi due to its nature. We can say its work like traditional banking finance but with the help of blockchain this could be done on their own as the platform served as your easy to go access while banks used personnel to do it for you while this one gives you the freedom to manage it well and monitor it anytime. But the exploit and breach is inevitable since codes might give ulterior problems when a hacker crack some flaws.

Is De-Fi really Decentralized finance? I doubt it. These cryptocurrencies are highly centralized, or at least they have one or more points of failure. The government could easily go after them and force them to comply with the regulations.
I do not know whether these rumors are true or not, but they are possible and there are many alternative financial options instead of staking or lending DeFi coins.

It's unavoidable, but it isn't going to be as simple as everyone seems to think, where regulators control everything. Regulated Decentralized Finance can be build on even on decentralized permissionless ZK blockchain where we don't have to share everything with regulators. All they need is that we need to prove something they require. And with zero knowledge proofs we can provide the proof without revealing anything we want to keep secret.

Assets can be issued on top of that blockchain and while native coin itself can be permissionless, assets can be issued on L2 and have some qualities that regulators want, like transactions being reversable, private and instant.

That's exactly the same article I've read online. I really hope the bill is rejected by Congress in the long run. Otherwise, it'll be the end of crypto in the US for good. Developers wouldn't want to join the crypto train in a country with tightening regulations. We could say the Biden administration has been aggresive against crypto/Blockchain tech since the very beginning. Especially SEC chairman Gary Gensler.

I know "De-Fi" will stand the test of time, but it's likely we won't see innovations across the US if the industry is regulated for good. A regulated "De-Fi" platform would become no different than regular banking. Isn't KYC/AML the single point of failure? By fighting against such absurd regulations, the US government will have no choice but to step back and let crypto run its course. No one can predict the future, so lets hope for the best. Just my opinion :)

This is very easy to do on uniswap if there is legislation, but so far there is none. The MICA law in Europe does not regulate the DeFi sector at all and in the US also only bills, but this issue will most likely be resolved in a few years either by introducing whitelists or by introducing digital identifiers. And the laws of other countries will not contradict the rules of the USA and Europe.

This will be horrendous since we talking on the protocol level, not on the front end. By comparison with Tornado Cash sanctions, it only happens on the front end, but the contract itself is still running and accessible. Given that, that is why I say it is horrendous, a protocol level regulation would force the developer to comply to make the identity verification tied directly to the system. Which completely obliterate the goals decentralized finance trying to achieve.

I believe most defi protocols, instead of complying will simply make a different alternative that creates specifically to satisfy US regulation in case the bill is enforced. Forcing all of their users to comply with this specific bill is truly a bad idea.

Or it could be an opportunity to test decentralization for real rather than being surprised that you won't be able to sell your tokens on uniswap unless you complete identity verification.
It is a good opportunity, the market is now low, and this news will not affect the next Bitcoin cycle, so if something bad happens, it is better that it happen now until next April, but betting that central funding will remain for a long time may not be wise.

Personally, I think De-Fi was a good opportunity when there was no return from lending and stimulus packages were easy, but now there is no real reason to use it.

I do not know if that's real or not, but there will not be any developer who would be willing to do that because after they release it, it's no longer their problem. It is purely ran by the people and there won't be any dev that can control it. That's why it's called defi, it's decentralized, so there can never be anyone who can ask us KYC in the logic of it, it's just not possible.

Of course you can try, but the simplest result would be people picking an non-American nation to build it, and just release it, then they will not care about what SEC or anyone else says about it, they do not even have to share their own KYC, which means that USA wouldn't even know who started it, could be an American as well and they wouldn't know.

The government will try regulating defi. Almost all platforms today can ask for KYC actually especially if they can identify the CEO of a Defi platform, the government will file a lawsuit against those guys and mandate them to KYC their users. There is no escape that's why it's best for platforms to have unknown CEOs.

The government will be able to get the data but when the people understand it already, the new Defi platforms that will come out after will be a lot harder for the government to control. This is already a revolution in action.

If this is passed on the court and they implemented it, I wonder how can US developers implement it right or how can they attract users/customers to use their product if they will require them to submit KYC just to use their product. I'm sure these developers will have a hard time implementing it and to think that they will change the design of their project because of regulation like this. It would be a nightmare. The question is what would the developer choose? Will they bend their system or the law. It's a question for the future.

Developers might change the code to require users to submit ID verification documents (KYC). Or they could simply block users from certain countries from accessing the front-end interface. But that won't stop tech-savvy users from accessing the smart contract directly. To make things difficult for the government, developers must remain anonymous. Otherwise, it'll be easy to regulate "De-Fi".

I'd say a "De-Fi" platform that complies with KYC/AML would no longer be decentralized. That's because a middleman is needed to collect the information and provide it to the government upon request. Isn't the whole point of crypto/Blockchain tech to "be your own bank"? I don't think the government will be successful at regulating "De-Fi" due to the way it was designed. Who knows if they ultimately give up and join the revolution? Just my opinion :)

These regulations work completely against the logic of De-Fi, it has no meaning. Defi's completely transform into Cefi. I believe there should be different regulations besides KYC but KYC/AML rules should be invalid for Defi protocols so people can trade easily. A balance between market centralized and decentralized is essential. I don't think much will come of these suggestions.

The problems of regulation in the DeFi sphere were discussed by Andre Cronje several years ago. He argued that the DeFi industry is in dire need of regulators, otherwise it has no chance for serious development, for some kind of acceptance. This is because there are a lot of random and temporary people coming into the industry, who fill the market with temporary products, the purpose of which is to enrich themselves at the expense of investors. Then these people disappear and appear under new nicknames and new brands. They may be the same people, but because of the anonymity and lack of regulation in the DeFi sector, the sector is perceived by serious investors as something akin to a casino.

What could happen is a mass exodus of developers from the US to other crypto-friendly countries. The government can't stop the revolution no matter how hard it tries. Trying to stop "De-Fi" is like trying to stop people from using the Internet. Adding KYC to a "De-Fi" platform is simply not an option because that would make it centralized. This will introduce the "single points of failure" crypto was meant to avoid in the first place.

Either the government doesn't understand how crypto truly works, or it's doing this intentionally to scare away as much people from crypto as possible. We'll see how "De-Fi" developers will respond when regulations come into place. I'm certain governments' efforts will turn into a huge failure. Just my thoughts ;D

Based on the related article's wording, which is, decentralized finance protocols, I doubt it will only be on the frontend level. Protocol-level implementation means the identity verification system is a gatekeeper that is inherently developed within the smart contract. Although, I did not know whether it is possible, to implement such kind of case, user/IP detection, identity submission, etc. on the protocol, in one way or another, it would simply become a centralized product just like regular services/platform.

But that supposes it is truly on the protocol level. Back to the main assumption, I tried to read the bill, but have no luck accessing the file: https://www.congress.gov/bill/118th-congress/senate-bill/2355.

I think developers might use something called "Oracles" to obtain personally-identifiable information and transfer the data to smart contracts. It's complex, but not impossible to achieve. That's if we're talking about adding KYC at the protocol level. But doing this will greatly defeat crypto/Blockchain tech's original purpose which is to eliminate the middleman for good. Bitcoin was created on the basis of decentralization in an era where centralized financial institutions (banks) were about to collapse. We should not repeat the same failures of banks by making the whole system centralized.

If "De-Fi" complies with KYC/AML, then it wouldn't be decentralized anymore. Hopefully, the US government will understand as it finds no viable way to properly regulate the industry. With greater flexibility in crypto regulations, the industry could grow without limitations. Who knows what the future holds for "De-Fi"? Just my thoughts ;D

The purpose of Defi would not be accomplished, if the government view is in adherence. The government has always been against in the concept of decentralization and this is visible on the sanctions that has been levied against big players in the industry.

You can create any DeFi project, but you will not attract investments into it if you are anonymous and do not pass mandatory audits. Most likely, you will be forced to build a fallback shutdown into the smart contract to pause or slow down the project if there is a hack. DeFi projects are no longer decentralized.

I see. Surely now I think it does doable. An identity management platform to fill the data to protocol level. Generally, we know that oracles govern the market price data to the smart contract, but in this case, it is the identity of the user.

Given that, it certainly would turn the so-called web3 ecosystem into just a regular non-blockchain centralized platform, as I have been saying. It is an attempt to authoritatively control the ecosystem. A very likely sane decision from many developers is surely to leave the US market in case the bill is enforced, I'm sure there is no benefit even from complying with the bill for the whole general market of the platform or service.

You can be sure they are doing this on purpose, governments do not care if by introducing those regulations they are forcing a decentralized platform to become centralized, what they want is for the developers behind that project to comply to their wishes and that is it, however as you mention the Pandora's box is open and there is no way to close it now, and governments as much as they dislike this scenario and they may do all what they can to prevent people from using those platforms, at the end they will fail.

That's the saddest part of crypto these days. Investors want developers to reveal their identities before supporting a project. Back in the early days, that wasn't the case. You can see how Bitcoin became successful even when no one knew the true identity of its creator. Unfortunately, those days are over thanks to the increasing number of scams plaguing the industry.

Nowadays, it's all about KYC and public appereances to help gather the attention of the masses. I have a feeling the industry is reeling away from its core principles of decentralization and censorship-resistance. Most "De-Fi" platforms aren't as decentralized as they claim to be. Once regulators get into the game, you can say goodbye to Web 3.0 for good. Who knows if "De-Fi" is heading towards a dark future? Just my opinion :)

Without regulation, crypto won't succeed. Sooner or later it is bound to happen. Especially since most defi or just different startups are scams and created for the sake of stealing other people's money. Now it is becoming clearer that different governments will make different laws about cryptocurrency.

If we want to attract VCs and institutional investors into crypto, regulation would be our only choice. It's unfortunate because it will deviate crypto towards the path of centralization. But there's nothing we can do about it, especially if we want market prices to go all the way to the moon. Despite the alarmimg threat of centralization, we still have a small number of projects that are actually decentralized. The only thing is that they're not as popular as their centralized counterparts.

When "De-Fi" gets regulated, the platforms which don't comply with KYC/AML rules will be left out of the game. Only people seeking true privacy/anonymity and freedom will use them. Crypto has come a long way since 2009, so don't expect it to disappear anytime soon. Who knows what other tactics will mainstream governments (especially the US government) come up with in the future? Just my thoughts ;D

Sometimes, the US congress misplace priority or perhaps they don't have a good understanding of what Defi is or they thought it's just like their corrupt traditional finances we have had for the years. Decentralized finances is as useless like the traditional finances if it becomes KYC, the right to control will becomes a normal thing and important call and decisions will be difficult to make because of privacy issues. The system can't be control effectively of they allow KYC into the Defi, it will die and interests will not be there and when that happens, the adoption will die and failed impromptuly.

My thoughts? If they implement this, Defi will not grow, people will be scared to bring money into Defi because they will be scared to get question and who will not be afraid when your money can be trace and seize any moment in time. The Congress should face another thing that is troubling the country instead Defi, the Defi will mature with time just the way Bitcoin has improve over the years.

At the same time, funds have been investing in crypto projects for years, where there is almost no regulation. So, the presence of regulation is not so important for them to invest in some projects.


For example? Any known altcoin is by definition centralized, as such an altcoin has a development team and major venture investors.

I think De-Fi itself is already centralized, it's like Ce-Fi without KYC, but they still record your real IP address and they can control your coins through the centralized pool. If De-Fi get regulated, then it's no longer De-Fi and they should change their name.

However De-Fi and mixing service are different, you can't use De-Fi for anonymity purpose, while mixing service is definitely make you become anonymous and the government don't like about that.

Not all altcoins are centralized. We have decentralized alternatives to Bitcoin such as Litecoin, Dogecoin, Namecoin, Peercoin, and a few other old coins governed by the community itself. These usually have low market prices and a smaller market cap, as investors are only focused on the big players. ETH was once decentralized, but it turned into garbage once Vitalik and his team pushed the PoS upgrade. Now exchanges have all the power to do whatever they want with it. Things will get worse for ETH when most network activity will move off-chain (L2). It will leave the main chain smaller and vulnerable against centralizing forces.

I's say "De-Fi" was always a "sham" because developers never cared about making anything truly-decentralized. The use of centralized servers to host the frontend interface of a dApp, as well as the collection of IP address and the use of domain names controlled by ICANN is more than enough proof that "De-Fi" is not as decentralized as many claim it to be. Who knows if this will open the door for governments to enforce KYC/AML regulations? Just my thoughts ;D

Decentralized altcoin is an oxymoron, seriously. An asset cannot be truly decentralized, having a management apparatus represented by a team of developers and funded by someone, be it a fund or a baker. The interests in the project will be, first of all, defended for this layer of investors. Even if the project has decentralized levers, such as community voting through wallets, there are many examples in the crypto sphere, where some necessary initiative was supported by 2 or 3 wallets, which concentrate more than 50% of the total supply of coins.

I see what you mean. Most altcoin projects are funded by VCs, leaving them with no choice but to reveal the identities of the development team. This would make them centralized, as they will be driven by investors' own interests. I think the only coins that are not this way are Litecoin, Dogecoin, Peercoin, and Monero. They are guided by the community every step of the way. Without an ICO or pre-mine, they'll remain decentralized and equitable for everyone.

Sadly, all of the attention is on centralized coins these days. Don't expect the good-old coins to reach a new ATH anytime soon (except if BTC goes all the way to the moon). Most (if not all) "De-Fi" platforms are built without decentralization in mind, so we should expect them to please the regulators by incorporating KYC/AML measures soon. Who knows if this will mean the end of "De-Fi" for good? Just my thoughts ;D

I cannot agree with the inclusion of Dogecoin in this list. Although it is a true POW with a long history, at the same time, with the arrival of Ilon Musk, this coin became dependent on one man who made this memcoin synonymous with speculation and completely killed the basic utilitarian function of DOGE. The DOGE exchange rate is now solely dependent on Ilon Musk's tweets and therein lies the centralized nature of DOGE. Unfortunately, this coin is not what it used to be.

Elon Musk can move market prices for his own benefit, but that doesn't mean he controls Dogecoin. More like he has a huge influence on the crypto market itself. The DOGE blockchain is decentralized, outside the control of a single person or entity. Mr. Musk's DOGE holdings cannot be used to make decisions on the chain itself. If Dogecoin were a PoS cryptocurrency, things would've been different. I'm glad it's still a PoW coin, at a time when most altcoins are switching to PoS. They're just afraid of mainstream governments with their "high energy consumption" FUD. But what most coins are doing is sacrificing decentralization by becoming "carbon-neutral".

I think "De-Fi" platforms will please the regulators just to avoid being left out of the game. Otherwise, governments could close them down for good (if they're not as decentralized as they claim to be). The crypto world is constantly being challenged by the threats of centralization, so expect things to get worse in the long run. Assuming all altcoins become centralized, we'll be left with Bitcoin as the sole alternative against the corrupt monetary system empowered by banks and governments worldwide. Who knows what the future holds for "De-Fi"? Just my opinion :)

Governments can find out who the CEOs of those DEFI platforms and it will not be difficult for them to implement those regulations. We are seeing this happening and the government will consider DEFI illegally operating just like the centralized exchanges operating in the US which were also deemed operating illegally.

This is why some are actually doubting they have not found Satoshi. Government can do lots of possibilities and the world can be a small town where everyone knows each other's dirty secrets.

Since when does "De-Fi" need CEOs to operate? Wouldn't that make them centralized? The only way governments will be successful is if they find out who the developers of the "De-Fi" platform are. But if it's someone like Satoshi Nakamoto, then good luck with that. Decentralization must prevail for people to escape the clutches to evil banks and governments alike. Without decentralization, we would get a "glorified banking system" subject to the likes of a few players.

I really hope governments don't enforce KYC on "De-Fi" or it will be the end of an era for good. Most platforms are centralized, so it will be easy enough to enforce regulations. Who knows if the crypto industry is heading towards a dark future? Just my thoughts ;D

For a complete financial freedom, not only we need decentralized finance but also decentralized internet. Government like US which benefits from its regulation of global money would go to any extent to criminalize any thing that threatens their control. With the dependence on current form of internet, they can just block and criminalize access to exchanges that doesn't pays them. Its advisable to follow the rules of the jurisdiction you fall into. But what the oppressive government should realize is with the access to global village, it's much easier to change your home.

We don't know how much of the supply it controls. Just because the blockchain is decentralized does not mean that the coin itself is also decentralized. If the coin is going to have a few large investors who control 51% or more of the supply, what decentralization can we talk about? I don't rule out that Musk, before pumping doge via twitter, accumulated a significant portion of the supply and then sold these coins to hamsters at a huge markup, because the price of DOGE from 2020 to 2021 increased simply many times, hundreds of millions of dollars could be made on it, especially considering the media weight of Ilon Musk.

Indeed. Elon Musk's Dogecoin holdings is a mystery to many. But even if he had 50% of all the DOGE, he would not be able to control the network itself due to the way it was designed. Only miners with their ASIC equipment will be able to do so. I don't think Mr. Musk will be able to afford lots of ASIC hardware just to "steer" the Blockchain to his own direction. If he does manage to pull it, the community will simply fork away to a new chain. That's the beauty of decentralization.

I think the same will happen with "De-Fi" platforms. If they integrate KYC, the community will fork off and carry on with the original project in a truly-decentralized manner. We must remain vigilant in these crucial times. As long as there's one cryptocurrency that's decentralized, there should be nothing to worry about. Just my opinion :)

Perhaps he does not control the network itself, because he is not interested in that. He is interested in other games, games with price and crowd behavior, so he is focused on managing the price of this asset.


It is enough to impose regulations norms for coin developers and take them out of the zone of anonymity and scams in this sphere will become much less.