Regulating Decentralized Exchanges: Is it possible?

[Abiky]

Some time ago, the US SEC held EtherDelta's founder accountable for the listing of unregistered securities on the platform. This was surprising considering that the exchange itself is decentralized living on a network outside the control of a single entity. Everything was governed by smart contracts on the Blockchain in a fully-autonomous manner. Yet, the government agency decided to prosecute the creator of the DEX itself. This could be a serious issue for other DEXs if governments decide to crackdown on the industry.

The real issue would be finding the creator of a DEX whose identity is anonymous on the Internet. It would be impossible to enforce regulations on decentralized exchanges this way. Once the government finds that its efforts are in vain, it could deem smart contract platforms such as Ethereum and Cardano "illegal".

What are the implications of regulating decentralized exchanges? Do you think it's possible to enforce regulations on them? Can DEXs remain decentralized enough to go above the law? Your input will be greatly appreciated. Thanks in advance.

[adekogbe]

The decentralized nature of exchanges should mean that regulation isn't an option. However a lot of projects claim full decentralization buy in practice only a few  projects are fully decentralized.
Some projects are only partially decemtralized and still allows for their smart contracts to be altered.

[zasad@]

https://www.sec.gov/news/press-release/2018-258
This news is already 2 and a half years old
Why don't they sue Vitalik Buterin, because he is to blame for everything
I didn’t listen to SEC filed lawsuits against uniswap, balancer and other similar exchanges.

[shinratensei_]

What are the implications of regulating decentralized exchanges?

It's quite difficult to think about the implication to regulating dex consider people trade directly from their wallet and the amount that already traded will be also coming back to their wallet.

Do you think it's possible to enforce regulations on them?

I do think that it's possible but regulation will be quite difficult to be applied because people are calling the smartcontract to trade their tokens. The only possible thing to force the creator of dex to put verification may be

Can DEXs remain decentralized enough to go above the law?

Dexs can and why not?

[Ryker1]

The decentralized nature of exchanges should mean that regulation isn't an option. However a lot of projects claim full decentralization buy in practice only a few  projects are fully decentralized.
Some projects are only partially decemtralized and still allows for their smart contracts to be altered.

Well, you have a point there and if the decentralized exchange is legitimately running decentralized exchange, it should be decentralized and no one will regulate it. If the decentralized exchange was made and not an open blockchain source, perhaps not that truly decentralized exchange. So now, how they can regulate DEX? It is impossible and that's will not work on DEXes. They can't put any institutional law such as money laundering or such search and seizure rights, and users will remain to trade anonymously.

[DaMut]

was not the main point of that lawsuit is the hosting of the dex platform rather than dex itself?
not to mention that was two and half years ago when cryptocurrency is not well accepted and banned in a few countries.
I do not see any problem for the others as long as they are running the dex in crypto friendly country. even if decentralized exchange is bound to be no restrained by the system, but as long as you are running it under place where regulation is strict. you will not be able to survive and act as it is intended to be.

[aioc]

What are the implications of regulating decentralized exchanges? Do you think it's possible to enforce regulations on them? Can DEXs remain decentralized enough to go above the law? Your input will be greatly appreciated. Thanks in advance.

Can they do it and why they should, they know nothing about decentralization if they are going to push through with this, they will have to find a flaw first then they have to find a way to get through the system and set up regulation rules, something that is not within their reach because they only know laws and regulations but not the technology behind decentralization.

[cabron]

What are the implications of regulating decentralized exchanges?

It's quite difficult to think about the implication to regulating dex consider people trade directly from their wallet and the amount that already traded will be also coming back to their wallet.

Do you think it's possible to enforce regulations on them?

I do think that it's possible but regulation will be quite difficult to be applied because people are calling the smartcontract to trade their tokens. The only possible thing to force the creator of dex to put verification may be

Can DEXs remain decentralized enough to go above the law?

Dexs can and why not?

I do think it's possible. If they did it to etherdelta, they could do it to any dex. It is however pointless doing it and it must have been in their minds as well because people will just find a way to trade to another dex which will lead them to countless DEX that could be created a thousand times a day.

DEX are not fully dex in a situation where they could be stopped by SEC. Until the website domains and servers are accessible by authorities, it will not fully become DEX but the mobile apps of these DEX and software like Blocknet are likely harder for them to stop.

[coinmaster241]

Actually not for all anonymous DEX makers, etherdelta is indeed a complicated case because the author is anonymous and it is impossible to find anonymous people, but from the side of the etherdelta platform it is a completely decentralized exchange and everything is managed by each user.

[imstillthebest]

The real issue would be finding the creator of a DEX whose identity is anonymous on the Internet.

this is not our problem but its their problem .
decentralized exchange are anonymous but that will be for the users of the exchange but for the founder they can choose to not become anonymous for future reference .

Can DEXs remain decentralized enough to go above the law?

sure they can .
they didnt succeed of regulating etherdelta and the status of decentralize exchanges up to this point are the same decentralized but they dont go above the law .
law are above all

[Coin_trader]

Surely SEC might not fully regulate DEX but they can restrict there citizens to used it which IMO has same effect on regulating DEX. People should follow the law if there is so no matter how the DEX dodge while the user itself is vulnerable on centralization, that’s still a win for SEC.

[gurunanakji777]

SEC as usual creating mess and I don't think it will be regulated easily if they regulated Dex then Dex will lose their importance. But I know SEC is quite hard it will keep trying to make it regulate it as far as I think. Nothing is above the law If they want to regulate it they will do it to some extent in their own country.

[jrrsparkles]

Some time ago, the US SEC held EtherDelta's founder accountable for the listing of unregistered securities on the platform. This was surprising considering that the exchange itself is decentralized living on a network outside the control of a single entity. Everything was governed by smart contracts on the Blockchain in a fully-autonomous manner. Yet, the government agency decided to prosecute the creator of the DEX itself. This could be a serious issue for other DEXs if governments decide to crackdown on the industry.

The real issue would be finding the creator of a DEX whose identity is anonymous on the Internet. It would be impossible to enforce regulations on decentralized exchanges this way. Once the government finds that its efforts are in vain, it could deem smart contract platforms such as Ethereum and Cardano "illegal".

What are the implications of regulating decentralized exchanges? Do you think it's possible to enforce regulations on them? Can DEXs remain decentralized enough to go above the law? Your input will be greatly appreciated. Thanks in advance.

Its impossible, that is why it is called decentralized since its not controlled by anyone and the creator can't be responsible because the projects are transacted using smart contracts of the respective networks. If SEC wants to regulate DEX then they should ban it completely which is also useless.

[cryptoperkele]

What are the implications of regulating decentralized exchanges?

You guys might want to check out what Dusk is doing with their XSC standard. They have been solving exactly this problem with a first layer solution.

[goaldigger]

I remember this case which shocks the whole market that time, it looks like SEC is trying their best to sue every DEX in the market but failed to win in those cases. We might see some lagging on DEX when it comes to their efficiency, but I personally think that they’ll stay DEX at least those real DEX and SEC can’t do anything about it, not unless they solve the problem and sue those behind of the projects.

[sana54210]

What are the implications of regulating decentralized exchanges? Do you think it's possible to enforce regulations on them? Can DEXs remain decentralized enough to go above the law? Your input will be greatly appreciated.

When it is decentralized, how could it be regulated? I mean the whole point of being decentralized is the fact that it should not be at the control of anyone, and regulating means that it should be controlled by someone to check what is going on, and that shows us that if something is controlled it is not decentralized. This is why technically speaking it is impossible to regulate a decentralized exchange, if it is regulated that means it is not decentralized to begin with.

I do however think that SEC could still look into decentralized places, like let's say Binance smart chain is decentralized, pancakeswap in that is decentralized but that doesn't stop SEC to check into CZ and what he is doing with BSC, not that he can control it, but he will be still investigated anyway, because SEC doesn't know how decentralized finance works and they have never dealt with anything like that before so they go after the creators.

[Fivestar4everMVP]

Both etherdelta, forkdelta, idex, etherflyer and the likes are never truly decentralized, any exchange claiming to be decentralized and yet, users and deposit fund before they can trade, or withdraw fund before they can see or send from their wallet is not a decentralized exchange, tell me, what happens when you deposit on coin or token to and exchange, the token or coin leaves your wallet and goes into the exchange wallet which means you are no longer in possession of the coin but the exchange is, a fully decentralized exchange is one that can handle wallet to wallet trade with absolutely no middle man in between.

[Anonylz]

First off am thinking how is that going to be possible since all trade are done from the users end! Or am I missing something here, if for some reason this happens to be a thing that could eventually happen, then it is pointless to think some exchange are decentralize, when in the true sense they are not, however, the sec could decide to investigate the owner of a dex and that can indirectly affect the exchange.

[satsmainman]

Yes it's very very possible to have a regulated decentralized exchange, i have personally come across one sometimes ago. The way to do that is to have all members have a verified account with the exchange before they can connect their wallet and engage in trading operations.

[paxmao]

It is certainly possible to regulate DEXs as much as it is possible to regulate any other content on the web since you need to host a frontend somewhere, which by the way, is where the main vulnerability is located (see etherdelta hack). However the legislation is quite different across jurisdictions so, at most, a country can regulate the rules of engagement of the DEX with their residents or citizens.