Will governments crack down on DEXs someday?

[pooya87]

It looks like we are heading toward that direction specially in places where the governments are addicted to surveillance and control and are spending millions of days to mine people's data in places like NSA and others...

The only ones that are going to be fine are the centralized exchanges that refer to themselves as decentralized like the one Binance had
The first ones to go are going to be the ones that have some reliance on centralization, like have a centralized server the traders need to connect to or pay the fees to in order to be able to trade.
The last ones that would go are the truly decentralized ones but the  devs behind them will be the primary target not the platform. It could be some malicious hostile takeover or simply shutting them down and deleting their code from the internet (as much as they can) and threatening users from using them with prison time or hefty fines.

[MAAManda]

Some DEXs in the past have already shut down due to government and regulatory issues; it’s no longer something new. It's a matter of anytime they consider one DEX to be conducting a high volume of transactions, which, to some extent, they can consider a threat, they will come after it, in the same way some mixers are still existing and will continue to exist until the government makes them their target and forms an excuse to attack them.

IDK if I've missed some important industry news, but I have never heard of a single DEX being forcibly shut down by the government or regulators. Recently, Loopring's DEX shut down, this was not due to government or regulatory action, but rather low user adoption rates. To verify it, you can read news about it here: https://pluang.com/en/news-feed/loopring-tutup-dex-adopsi-zk-rollup-gagal

Back to the topic of the DEX shut down by the government, if you have anything to substantiate that, feel free to provide it, otherwise you're just spouting bullsh*t.

[OmegaStarScream]

Entirely possible, I see these as the two paths to be followed:

- Punish the builders and developers behind those projects (especially those who don't comply). Like they did with privacy focused tools such as Tornado cash and Samurai wallet.

- If the founders are no longer associated with these platforms... another way to do it would be to punish the users by forcing CEXes to block addresses and transactions from those dexes.

Although it is worth mentioning also that with many centralized projects that can freeze your funds (USDT, USDC, or entire chains like we've seen Arbitrum somehow managed to recover hacked funds, etc) a complete crackdown on DEXes may not even be that necessarily.

[Odohu]

My understanding is that government have problems with anything that is privacy oriented, so I will not be surprised if they go after DEX someday because they do not collect KYC data of their users. Most of the funds stolen through hacks are passed through DEX together with mixers and coinjoin, so I think they are in the same category and in the wrong side of government books. Using DEX may not pose a threat to the users but the operators might be targeted through shutting down and other forms of crackdowns.

[Ahli38]

Some DEXs in the past have already shut down due to government and regulatory issues; it’s no longer something new. It's a matter of anytime they consider one DEX to be conducting a high volume of transactions, which, to some extent, they can consider a threat, they will come after it, in the same way some mixers are still existing and will continue to exist until the government makes them their target and forms an excuse to attack them.

IDK if I've missed some important industry news, but I have never heard of a single DEX being forcibly shut down by the government or regulators. Recently, Loopring's DEX shut down, this was not due to government or regulatory action, but rather low user adoption rates. To verify it, you can read news about it here: https://pluang.com/en/news-feed/loopring-tutup-dex-adopsi-zk-rollup-gagal

Back to the topic of the DEX shut down by the government, if you have anything to substantiate that, feel free to provide it, otherwise you're just spouting bullsh*t.

Yes, that’s right. I’ve also never heard of a decentralized exchange being shut down by the government. And so far many DEXs have closed simply due to internal issues. Loopring DEX closed this year due to adoption issues and technical limitations. And last year the DEX Bunni shut down permanently after an incident forced them to close because they were unable to cover their operating costs (Source). So I personally believe that no DEX has yet been forced to close by regulators. But it’s still possible that it could happen in the future by considering that anything can happen for one reason or even another.

[justdimin]

My understanding is that government have problems with anything that is privacy oriented, so I will not be surprised if they go after DEX someday because they do not collect KYC data of their users. Most of the funds stolen through hacks are passed through DEX together with mixers and coinjoin, so I think they are in the same category and in the wrong side of government books. Using DEX may not pose a threat to the users but the operators might be targeted through shutting down and other forms of crackdowns.

They always do, and I can't really blame them for it. Like when the privacy coins got banned, did you really got shocked about it? Think about it for a moment, we are talking about something that allows you to hide your transactions from the government. You may have very good reasons for it, even just saying you want to evade taxes, which almost everyone does.

But you also need to remember, that also means bad people are using it as well. So when it comes to DEX, same logic applies, YOU may have good reasons, but bad people do exists out there and can use it.

[nelson4lov]

My understanding is that government have problems with anything that is privacy oriented, so I will not be surprised if they go after DEX someday because they do not collect KYC data of their users. Most of the funds stolen through hacks are passed through DEX together with mixers and coinjoin, so I think they are in the same category and in the wrong side of government books. Using DEX may not pose a threat to the users but the operators might be targeted through shutting down and other forms of crackdowns.

But these DEXes are inherently not private. About 95%+ of all DEXes live on public blockchains that are updated in real time so it's not like all the trades being done are fully private. They're just not tied to all users using the platform. And I believe that once the clarity actis put in motion, it would become clear about how DEXes should operate. I believe long term, they'd just be regulated but not shutdown. That's a very important distinction.

[Emitdama]

The known DEXs today have their developers and owners named in public, so what makes the government will have to implement if they want something to do with them? I guess that the possibility is there but that depends on what really cracking down means to them. I think it's mostly about regulating them instead of cracking down especially the established ones and they can't ignore volume and profit which translates as tax to them.

Technically, you can't really force a decentralized exchange to shut down because it doesn't rely on a centralized company or office. It runs on smart contracts.

Authorities can take down a website or seize a domain name, but that doesn't necessarily stop the protocol itself. People can simply access it through alternative front ends or interact directly with the smart contracts. It's somewhat similar to how services on the dark web remain accessible through alternative addresses even if a particular website is taken down.

So while they can make a DEX less convenient to use, shutting it down completely is a much more difficult challenge.

[Orpichukwu]

IDK if I've missed some important industry news, but I have never heard of a single DEX being forcibly shut down by the government or regulators. Recently, Loopring's DEX shut down, this was not due to government or regulatory action, but rather low user adoption rates. To verify it, you can read news about it here: https://pluang.com/en/news-feed/loopring-tutup-dex-adopsi-zk-rollup-gagal

Back to the topic of the DEX shut down by the government, if you have anything to substantiate that, feel free to provide it, otherwise you're just spouting bullsh*t.

I mistook Nokyc Exchange for Dex, as I always thought Exch was a dex back in its early days of existence. It happened; it’s a centralized exchange that requires no KYC verification from its users, and after the Bybit hack and the exchange was used to clear some of the money they faced serious legal issues which lead to the decision of leaving the exchange market.

[Kavelj22]

Some DEXs in the past have already shut down due to government and regulatory issues; it’s no longer something new. It's a matter of anytime they consider one DEX to be conducting a high volume of transactions, which, to some extent, they can consider a threat, they will come after it, in the same way some mixers are still existing and will continue to exist until the government makes them their target and forms an excuse to attack them.

IDK if I've missed some important industry news, but I have never heard of a single DEX being forcibly shut down by the government or regulators. Recently, Loopring's DEX shut down, this was not due to government or regulatory action, but rather low user adoption rates. To verify it, you can read news about it here: https://pluang.com/en/news-feed/loopring-tutup-dex-adopsi-zk-rollup-gagal

Back to the topic of the DEX shut down by the government, if you have anything to substantiate that, feel free to provide it, otherwise you're just spouting bullsh*t.

Technically the authorities can't shut down a DEX. The Dex is running on the blockchain, they can't stop the code. But they can target the web version with host and domain providers. The authorities can arrest the team with the dev core. Today it becomes easy for authorities to detect all addresses belong to Dexs and flag them. As long as those tools are in public use, the authorities can't miss the event.

Governments can't crack down on all the dexs someday if the blockchain keep on the same level of trust. They have to deal with dexs and other decentralized services because they are unavoidable.

[Abiky]

It's the hard truth. We got IPFS back then to decentralize the single point of failure which is the front end hosting but nobody taking it seriously besides NFT makers who are hosting their pictures.
Besides, even if we have true DEXes they may have upgradable contract which is another centralized risk that can be infiltrated. True DEXes is just a mirage. In reality many of it still highly centralized.

So this means Solana has a high risk of centralization in its smart contracts? I mean, contracts are upgradable on Solana. Besides, the main chain itself is centralized. Even Ethereum is not as decentralized as one thought it would be. This was only in the early days when ETH was still a PoW chain. A true DEX needs to be built on completely decentralized and censorship-resistant infrastructure to stand the test of time. Not only doing this is complicated, but it's also time-consuming. Both developers and individuals are seeking convenience, so they will choose a hybrid exchange or a centralized counterpart instead.

Either way, governments have already won against crypto. Even if the industry is still alive. It's now flooded with VCs and institutional investors guided by their own interests. Centralization looms ahead in the future. At least, only a few decentralized cryptos and DEXs will survive. And that's what matters.

[MAAManda]

Governments can't crack down on all the dexs someday if the blockchain keep on the same level of trust. They have to deal with dexs and other decentralized services because they are unavoidable.

When we talk about the future, we don't actually know what will happen, even if all DEXs maintain the same level of trust, we don't really know how things will play out, do we?

I simply hope that the government doesn't view all innovations from the crypto industry as a threat, just as they initially regarded Bitcoin (BTC) as a haram asset (in my country). For context about the haram thing I mean, back when I was first getting to know Bitcoin (BTC), I wanted to start a business that accepted Bitcoin (BTC) payments. I still needed a conventional bank for this, but when I tried to open an account, the bank stated they couldn't open one for me if the purpose was related to Bitcoin (BTC) .

[TastyChillySauce00]

My understanding is that government have problems with anything that is privacy oriented, so I will not be surprised if they go after DEX someday because they do not collect KYC data of their users.

But these DEXes are inherently not private. About 95%+ of all DEXes live on public blockchains that are updated in real time so it's not like all the trades being done are fully private. They're just not tied to all users using the platform. And I believe that once the clarity actis put in motion, it would become clear about how DEXes should operate. I believe long term, they'd just be regulated but not shutdown. That's a very important distinction.

Yep, dex are not private, you can even overrun it like what MEV bots are doing. They see an order through public RPC, paid block builder a hefty sum and reorder to extract value from the slippage and if you put enough effort you can trace back the transaction to the cex origin and identify where the address belong to by contacting the cex. Dex is as transparent as it can be but government want to identify every single thing on the blockchain the same way they do to a lot of centralized exchanges.

[Oshio-man]

You need to understand that government don't crack down what is bring income to them to grow their economy, if truly DEXs is among the things that is bringing government enough income through their tax, it will be difficult for government to allow such decision to be taken in the country because they know that is not adding any value to the growth of the country because that is what government don't want, there are some government that are going into bitcoin and altcoins investment because they have heard how someone government officials is making it from bitcoin and other cryptocurrencies.

[Abiky]

Yep, dex are not private, you can even overrun it like what MEV bots are doing. They see an order through public RPC, paid block builder a hefty sum and reorder to extract value from the slippage and if you put enough effort you can trace back the transaction to the cex origin and identify where the address belong to by contacting the cex. Dex is as transparent as it can be but government want to identify every single thing on the blockchain the same way they do to a lot of centralized exchanges.

Addressing the "privacy" issue on DEXs, should be a piece of cake. Especially when we now have ZKPs (Zero Knowledge Proofs) capabilities both on smart contracts and on the main Blockchain itself. There's nothing stopping developers from creating a truly-decentralized DEX with privacy in mind. It's just that there's not much interest in this. The general public is satisfied with existing solutions. They prefer convenience above all else. It's why centralized exchanges are the dominant force of the market.

With this, governments already have crypto in their grasp. Core blockchain networks will remain impervious against government intervention. But exchanges won't. By controlling exchanges, governments will control who will be able to buy/sell crypto. Or more like who will be able to use crypto. That's the way it is. I guess atomic swaps would be our only escape route from government outreach. Only time will tell...

[Wakate]

My understanding is that government have problems with anything that is privacy oriented, so I will not be surprised if they go after DEX someday because they do not collect KYC data of their users. Most of the funds stolen through hacks are passed through DEX together with mixers and coinjoin, so I think they are in the same category and in the wrong side of government books. Using DEX may not pose a threat to the users but the operators might be targeted through shutting down and other forms of crackdowns.

The government does not want us to have control or our privacy and that is why they will want to create laws that will abolish anything that will make investors to have full control over their portfolio and coin exchanges.
We don't know what will be happening in the future if a strict government that does not have interest in cryptocurrency may try to make life harder for investors and those that take cryptocurrency as business.

[pawanjain]

With stricter regulations in the crypto industry, it's possible governments will begin cracking down on DEXs (Decentralized Exchanges). Especially those that are truly-decentralized without KYC checks. Regulators messed up crypto mixing services, and now they'll want to put DEXs in-check. All to force people to go through KYC and lose their privacy and freedom.

That makes me wonder, will DEXs face greater regulatory scrutiny over the long term? Because if they do, then people will have no choice but to use a CEX to buy/sell crypto. F2F (Face to Face) might be an option, although highly-risky. Because you don't know if the other end (party) is an undercover agent working for the government.

Thoughts?

At least leave the DEXs. They have already messed up mixers, going behind DEXs will just kill our freedom of exchange and privacy.
P2P trading is risky which is why DEX is the only no KYC option if we want to trade without involving any middleman.
The governments are just against this though and will possible kill every option that lets users to trade without getting tracked.

[abaeze]

With stricter regulations in the crypto industry, it's possible governments will begin cracking down on DEXs (Decentralized Exchanges). Especially those that are truly-decentralized without KYC checks. Regulators messed up crypto mixing services, and now they'll want to put DEXs in-check. All to force people to go through KYC and lose their privacy and freedom.

That makes me wonder, will DEXs face greater regulatory scrutiny over the long term? Because if they do, then people will have no choice but to use a CEX to buy/sell crypto. F2F (Face to Face) might be an option, although highly-risky. Because you don't know if the other end (party) is an undercover agent working for the government.

Thoughts?

Recently, the heads of CEX companies and American policymakers have created a policy on this, which the government is working to implement. So it is time to rethink this kind of apprehension or real decentralization. If DEX companies are forced to do this, they will not have the power to take a direct stand against the government and they will have to be compromised. Since crypto is not yet legal in many countries around the world, these rules will create a more complicated situation for new users. If KYC becomes mandatory, crypto supporters will have to think again about how to store their assets more safely. P2P and F2F are not a solution for decentralization.

[Kavelj22]

Governments can't crack down on all the dexs someday if the blockchain keep on the same level of trust. They have to deal with dexs and other decentralized services because they are unavoidable.

When we talk about the future, we don't actually know what will happen, even if all DEXs maintain the same level of trust, we don't really know how things will play out, do we?

We can't predict the future whatever the tools we have, but we can make assumptions based on our reading of the history. In technology, things are much more complicated because technicity is involving at a crazy speed.

We don't know what development might happen overnight. We are waiting for quantum computers to change everything including the blockchain technology but as a simple futuristic vision from now, it is far to happen sooner. As long as the blockchainaintain iys solidity, we, as users and authorities, have to deal with decentralized governance no way. As the adoption spreads, it becomes harder to get rid off it or to change it because an alternative would have to be created.

[Abu-Naim]

Addressing the "privacy" issue on DEXs, should be a piece of cake. Especially when we now have ZKPs (Zero Knowledge Proofs) capabilities both on smart contracts and on the main Blockchain itself. There's nothing stopping developers from creating a truly-decentralized DEX with privacy in mind. It's just that there's not much interest in this. The general public is satisfied with existing solutions. They prefer convenience above all else. It's why centralized exchanges are the dominant force of the market.

Developers can actually make everything private, but do new crypto users care about their privacy? This is where the problem lies, and that’s the reason why centralized exchanges are everywhere, and the government will keep controlling them which might result to controlling each and every user of crypto since so many crypto users prefer the use of CEX instead prioritizing privacy by using the DEX.

With this, governments already have crypto in their grasp. Core blockchain networks will remain impervious against government intervention. But exchanges won't. By controlling exchanges, governments will control who will be able to buy/sell crypto. Or more like who will be able to use crypto. That's the way it is. I guess atomic swaps would be our only escape route from government outreach. Only time will tell...

The government have crypto in mind to take control over, and the only way we can escape them is to keep off the CEX for our privacy, but if we keep prioritizing the CEX, they can control our crypto activities and with the way they are going, I also think that they are eying the DEX which I think will be difficult for them because the developers have created it in such a way that users privacy will be protected by all means that will make it difficult for governments to take control.