Will governments crack down on DEXs someday?

[shinratensei_]

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.

The problem is always on the legal side, the DEX have people working behind it and many of them don't want to get entangled into problem especially matter of anti money laundering.

They could easily route every swap through ZK shielding but they will need a lot of money to get the best lawyer to defend them in court.
Unless there is a regulation that could make it clear, separation of responsibility between DEX developers and the user who might intentionally do unlawful things, the privacy issue won't be addressed.

[M47AK16]

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.

The problem is always on the legal side, the DEX have people working behind it and many of them don't want to get entangled into problem especially matter of anti money laundering.

They could easily route every swap through ZK shielding but they will need a lot of money to get the best lawyer to defend them in court.
Unless there is a regulation that could make it clear, separation of responsibility between DEX developers and the user who might intentionally do unlawful things, the privacy issue won't be addressed.

That's the thing, if you build a DEX, you should not be responsible for it, or in charge of it. Remember, this is called a DEX, as in DECENTRALIZED exchange. Meaning that if someone can stop it, or do something about it, then it is not really decentralized.

So if they are not decentralized, that's bad, if they are decentralized and governments wants to prevent, they can't, because there is no ownership. So either way is bad for the creator of it, you either have no access and you will be harassed by the government, or you do have access and you are a liar.

[Abiky]

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.

I would've wished governments let DEXs be. But we all know they'll never be satisfied until they keep crypto under their grasp. It's all about power/control. This will be a never-ending game between crypto and governments alike. Like a cat and mouse game. Governments will try to crackdown on something, only for developers to come up with a solution. Crypto is decentralized and censorship-resistant (some of them), so it will be impossible to try to stop it.

Perhaps, governments will manage to force DEXs to comply with regulations. Only those that aren't truly-decentralized. But the rest? Good luck with that. Same with mixers. Governments were able to crack down centralized mixers, but they were unable to succeed with non-custodial ones. Let's just hope the only true DEXs we have left, don't get compromised in the long run. Or it will be game over for good. We'll see what happens...

[N9_Ninja]

I think regulatory pressure on DEXs will definitely increase, but shutting down a truly decentralized protocol is much harder than blocking its website. Governments can target developers, frontends, stablecoin issuers and fiat on-ramps, while the smart contracts may keep running. We’ll probably see more geo-blocking and optional compliance tools, not the complete disappearance of DEX trading.

[Abiky]

I think regulatory pressure on DEXs will definitely increase, but shutting down a truly decentralized protocol is much harder than blocking its website. Governments can target developers, frontends, stablecoin issuers and fiat on-ramps, while the smart contracts may keep running. We’ll probably see more geo-blocking and optional compliance tools, not the complete disappearance of DEX trading.

Geo-blocking and KYC compliance greatly defeats crypto's intended purpose. At least, we know truly-decentralized exchanges won't implement such measures. They're simply outside the governments' reach. Because of DEXs nature, governments will hunt them down for good.

At this point, it's impossible for DEXs to completely disappear. Just like you've said. CEXs and hybrid exchanges will continue to dominate the market, while truly-decentralized exchanges will remain the minority. As long as we have a choice, nothing else matters.

[shinratensei_]

That's the thing, if you build a DEX, you should not be responsible for it, or in charge of it. Remember, this is called a DEX, as in DECENTRALIZED exchange. Meaning that if someone can stop it, or do something about it, then it is not really decentralized.

Wholly agree, the misuse of the tool shouldn't be blamed on the creator because they don't have intention to misuse and not the actor.
It's a good privacy feature that could prevent wrench attack but we're not getting any of them implemented because the AML complication which many developers are so afraid about because it's no joke.

[Orpichukwu]

Wholly agree, the misuse of the tool shouldn't be blamed on the creator because they don't have intention to misuse and not the actor.

Tell that to the government. People are building for the sake of making things easy for users, while bad actors are out there thinking of ways to take advantage of the tools. Whatever the government did not like, they accuse and lay blame on it, but they forget that there is no system out there, including fiat and local banking sectors, which is not used by bad actors in one way or the other, but you will not see them condemning their own.