Will "De-Fi" platforms be subject to KYC/AML laws in the future?

[Abiky]

Regulators have been paying close attention to the development of the "De-Fi" space, especially when the Terra/LUNA implosion left many investors "rekt" in the process. After the Tornado.Cash mixing protocol was sanctioned, the US' OFAC agency told American citizens would be able to withdraw their funds if they'd provide them with personally-identifiable information. That makes me wonder if "De-Fi" platforms would be required to comply with KYC/AML laws in order to prevent being shutdown for good (they are hosted on centralized servers anyways). I believe governments (especially the US government) will be on developers' tails to force them to make "De-Fi" platforms that are regulatory-compliant. If successful, every "decentralized" lending platform or even "decentralized" exchange would ask for users' identities, greatly undermining crypto/Blockchain tech's core value proposition (which is eliminating the middleman).

Will this be the future of "decentralized finance"? If not, why? Knowing that most people prefer convenience on top of decentralization, I'm afraid "De-Fi's" future is not as bright as many thought it would be. Your input will be greatly appreciated. Thanks in advance.

[1715156160]

1715156160

[1715156160]

1715156160

[libert19]

Dunno exactly, but there should be workarounds around that as you might be able to access these platforms with different frontends. After all, they can only censor frontend and not the smart contract itself.

[cryptoaddictchie]

Will this be the future of "decentralized finance"? If not, why? Knowing that most people prefer convenience on top of decentralization, I'm afraid "De-Fi's" future is not as bright as many thought it would be. Your input will be greatly appreciated. Thanks in advance.

If so then its not defi anymore. Defi means decentralized finance and if kyc/amla have been introduced then there is an authority already. Yes we hate the fact that defi has been a ground for scammers and a lot losses money with such breach and exploitation happening on defi. What isnt nice here are those creating platforms to openly scam users. Well the government cant tolerate those scammers and wanted to jail them and hunt them.

As much as we wanted to retain the defi, then there is always scam projects ahead, and if we pursue a centralized regulations to those then we also breaking the definition of defi.

[X-ray]

Will this be the future of "decentralized finance"? If not, why? Knowing that most people prefer convenience on top of decentralization, I'm afraid "De-Fi's" future is not as bright as many thought it would be. Your input will be greatly appreciated. Thanks in advance.

There will always be future for the defi. To be honest almost all of defi were actually centralized finance. I think that people will always be falled into the word of defi. I think that if you are talking about how defi can exist in the crypto and it has proven if defi already exist since a few years ago but the question is whether the regulation will be hurting defi or not. This must become the main concern caused by regulators are always pushing defi to be compliance with regulation.
Remember that some defi that already taken down by regulators in the past. that proves that if defi was not actually decentralized like what already mentioned.

[bittraffic]

Government can regulate them because there is a way to regulate and if there is none, they can just ban them. It will happen if there isn't any innovation done to remove them from the way.

So many factors they can try to reach to make Defi comply like the CEO and the server of the defi platform.  What I think defi need is a platform that we can install as app on phones or computers to make it more decentralized.  But what will protect us from a platform that will likely scam us as well?

[vv181]

Dunno exactly, but there should be workarounds around that as you might be able to access these platforms with different frontends. After all, they can only censor frontend and not the smart contract itself.

That's quite incorrect, censoring on the smart contract level is possible and plausible.

If we take a look at Solend past histories, whereas there is passed governance that makes an attempt to take over someone's account, I don't think DeFi communities would fight back if they have government/authority pressure. So it is somewhat possible. I know it is too generalized, but if there is significant pressure, the developer and some community will likely just follow the regulation.

[tbct_mt2]

If so then its not defi anymore. Defi means decentralized finance and if kyc/amla have been introduced then there is an authority already. Yes we hate the fact that defi has been a ground for scammers and a lot losses money with such breach and exploitation happening on defi. What isnt nice here are those creating platforms to openly scam users. Well the government cant tolerate those scammers and wanted to jail them and hunt them.

DeFi projects are not truly decentralized if you count them with strict conditions. If you start a project and you doxed your identity, that project is never a truly decentralized project. Whatever you do with that, you are powerful person that can be caught by police, receive request to halt your project and so on. Bitcoin is really decentralized because the identity of Satoshi Nakamoto is unknown and the founder already intentionally left the community.

As much as we wanted to retain the defi, then there is always scam projects ahead, and if we pursue a centralized regulations to those then we also breaking the definition of defi.

Scam exists everywhere and in many types. DeFi is one of types used by scammers but not all DeFi projects are scam.

[mindrust]

Regulations and decentralization don’t go hand in hand. If a platform is being regulated by an entity, then you can’t call it a decentralized platform. Decentralized means it is unregulated.

Can you regulate bitcoin? You cannot. Every transaction goes through no matter who makes it and everybody can create a transaction. That’s how decentralization works.

You can regulate the exchanges because you know their owners. Since nobody owns bitcoin’s blockchain, it is impossible to regulate bitcoin.

[so98nn]

Forget about decentralisation peeps are so scared these days that they would pay extra bucks to have quality services and get more securities than just having LUNA like implosions as you said. Though defi getting its implications done for the true decentralised system it’s not worth it if millions of dollars are going to be stolen just like that without persons notification. These days exchangers like binance is more liked for the reason of safety, verifications like 2FA, liberty to have more chains than just one etc. Anyone would want to get services like that rather than DeFi. Though everyone has different mindset and outlook.

[theskillzdatklls]

The front-ends of a DeFi product may or may not require AML/KYC depending on where they are located and/or what their principles are.

But that only matters so much. Anyone technically competent enough can operate with a DeFi protocol without needing the front-end. That's the entire point and beauty of it.

This was seen with the OFAC/Tornado cash thing if I understood it correctly. The front-end would censor transactions, but if you just interacted directly with the blockchain, you could go ahead and do so yourself. Because it's a blockchain.

[Yogee]

Most "DeFi" are non-custodial platforms in reality. The term is mostly used just for marketing nowadays. I can see a future where certain level of user information will be provided by these "defi" developers to tax authorities and money launderung investigators.

.... I'm afraid "De-Fi's" future is not as bright as many thought it would be.

Most defi users are also using centralized exchange so none of them would really care if that time comes. They are retail traders who thinks more about making quick profits than worrying about KYC.

[yazher]

Depends on when they see it as a threat to the government and when other people will gonna use it for illegal activities. If not, they will leave it and concentrate on more important matters in the crypto industry and they will put some regulations regarding it. As of now they working on how they will gonna at least put some strict restrictions on the exchanges and others like mixers and crypto casinos so that they can have some huge amount of taxes and maybe they will go for De-Fi next time after it. 

[Text]

KYC/AML shouldn't be subject to De-Fi platforms.

Owners and users are responsible for taking care of their assets, most especially on investing/buying other coins and tokens, or entrusting their funds easily on different platforms.

[Coin_trader]

Based on the law they should because it needs to be regulate due to finance involved. User can launder using those DeFi by staking and using the yield profit as clean money. Actually this was already being studied by lawmaker on EU and they are close on implementing new law to apply KYC on DeFi.

KYC DeFi is obviously not DeFi anymore because it will not be decentralized since users identity will be required before they use this kind of financial instrument.

[FanEagle]

Technically, how though? I mean d in the defi stands for decentralized, which means that there isn't a central organization that could collect these KYC information. Just because the website itself is on a server doesn't mean that the whole thing is on a server, in fact the website is just an UI for it, normally you could do without that as well, you could literally deal with it purely on blockchain, the website you visit just makes it ten times easier to handle but that is about it.

Moreover, this is technically impossible and the second someone puts in a KYC into a defi, it is no longer a defi and it is a cefi and it will be a whole another point.

[Imran232]

These things become a little bit confusing and complicated also. First of all, we use Defi for freedom, which is what we actually got in our financial stage. And we don't want to share our personal information with an authority, so I don't think it'll be any good to use decentralized if it breaks its concept. We pay fees on every transaction on defi, such as a swap or exchange, because we don't need to pay huge fees like in decentralised, but if a third party is involved here who is obviously using defi, it will be a confusing decision for us. And if the government makes rules and a company has to follow them, then what can we do? It's obviously complicated. Thanks for the info.

[Xal0lex]

If we want to ensure that there is less scam in the DeFi space and no fear of another rug pull, then DeFi regulation is necessary. DeFi expert, Andre Cronje, wrote about this earlier. A large number of crypto projects are launched in unregulated crypto spaces and investors are completely defenseless against the threat of a scam or liquidity theft. After all, in order to register another token, one can remain anonymous and do anything. Everyone remembers the actions of Sushi's creator, for example. If we are talking about this space becoming a civilized environment for investing and using, it will never happen without regulation. Although it may go against the principles of cryptocurrency, the reality is that where there is no regulation, fraud and manipulation reign.

[jostorres]

Will this be the future of "decentralized finance"? If not, why? Knowing that most people prefer convenience on top of decentralization, I'm afraid "De-Fi's" future is not as bright as many thought it would be. Your input will be greatly appreciated. Thanks in advance.

If so then its not defi anymore. Defi means decentralized finance and if kyc/amla have been introduced then there is an authority already. Yes we hate the fact that defi has been a ground for scammers and a lot losses money with such breach and exploitation happening on defi. What isnt nice here are those creating platforms to openly scam users. Well the government cant tolerate those scammers and wanted to jail them and hunt them.

As much as we wanted to retain the defi, then there is always scam projects ahead, and if we pursue a centralized regulations to those then we also breaking the definition of defi.

Same thing I was going to say. I don't know if there are Ce-Fi's too other than De-Fi but if there are then KYC/AML policies can only be applied to them and not to De-Fi's but if let say it will be applied, then that De-Fi service will changed its brand and will join the Ce-Fi category.

There are big scams which had happened on De-Fi but I think some of those scammers have been caught out and the money have been recovered. See? It's still possible for them to be hunted even without those KYC and AML thing. Even if the service is decentralized, the governments are not ignoring them but they still do care for the possible harm that it could dealt in the innocent users.

[South Park]

Will this be the future of "decentralized finance"? If not, why? Knowing that most people prefer convenience on top of decentralization, I'm afraid "De-Fi's" future is not as bright as many thought it would be. Your input will be greatly appreciated. Thanks in advance.

If so then its not defi anymore. Defi means decentralized finance and if kyc/amla have been introduced then there is an authority already. Yes we hate the fact that defi has been a ground for scammers and a lot losses money with such breach and exploitation happening on defi. What isnt nice here are those creating platforms to openly scam users. Well the government cant tolerate those scammers and wanted to jail them and hunt them.

As much as we wanted to retain the defi, then there is always scam projects ahead, and if we pursue a centralized regulations to those then we also breaking the definition of defi.

These are my thoughts as well, if we're going to use those platforms and still have to go through KYC policies then what it's the point of DeFi at all? I might as well just use a centralized exchange which has more volume and which has great reputation so the chances I get scammed become very low, so this is something that DeFi platforms must resist and if they don't then I wouldn't be surprised if they lose a great deal of the people that use their services.

[serjent05]

Will this be the future of "decentralized finance"? If not, why? Knowing that most people prefer convenience on top of decentralization, I'm afraid "De-Fi's" future is not as bright as many thought it would be. Your input will be greatly appreciated. Thanks in advance.

If De-FI get subjected to KYC and AML laws then I think that isn't called De-Fi anymore.  That is more on Ce-Fi, centralized finance that requires KYC/AML in accordance to government regulation.

De-Fi platforms will never be a subject for KYC/AML because if they do, they will not be called De-Fi anymore.  I think it is as simple as that.

I would agree that the DeFi future isn't bright especially when government start hunting this kind of platform.