Time for maturity: We need compliant decentralized finance

Society needs to educate regulators and help them establish an achievable framework that can maintain the goals of both parties.

The field of encryption is an incredible and risky learning environment. Its volatility is a terrible warning for those who like to test the depth of the pool by jumping head-on. The old guard kept reminding the newcomers: “Come slowly, first learn the basic knowledge.”  Wealth, in this space, can appear or disappear instantly.

In 2018, many newcomers tasted the encryption winter for the first time. This is not the first crash of Bitcoin, and of course it will not be the last.

Although the encryption field has existed for more than 10 years, it is still in its infancy. With the rapid development of technology, every year we can try new concepts, new ideas, new applications and new ways to change the face of the world.

Of course, we have also encountered challenges, because the bad guys have found new ways to defraud people of hard-earned money. In addition, there are some new untested projects. Although these projects can gain value, they are also prone to failures, errors and loopholes. Decentralized finance belongs to these new experiments; although it brings the hope of exciting new ways of finance and investment, it also often brings disastrous consequences.

As more and more traditional organizations adopt cryptocurrencies-such as Square and PayPal-we will have the opportunity to meet new challenges; of course, it depends on those who understand the field, who understand the core values ​​and want to see It is not just a well-kept secret. And this is also a call to action.

What will a compliant DeFi look like?

Let’s define “compliance” first. It not only means that the project needs to comply with anti-money laundering regulations, but also means that the project needs to meet standards of quality and trust. In other words, DeFi projects should increase efforts in terms of safety, quality, user response speed, and regulatory compliance. Simply put, DeFi projects should ensure compliance.

What needs to be clear is that this is not claiming responsibility distribution and compensation for losses. After all, these projects are decentralized projects, not financial institutions. However, billions of dollars are accumulated on DeFi projects, so there should be an account. .

Our goal should be to increase the number of users, that is, to encourage mass adoption, and attract traditional markets and non-technical investors. We should bring the benefits of blockchain and DeFi to society. In an era when the government issues negative interest rate floating bonds and crazy money printing, people need better solutions to avoid the devaluation of wealth. Of course, it is even better that people should be able to achieve economic growth no matter who is the central bank that manages a particular currency or determines monetary policy.

So, what measures can the DeFi project and the overall encryption space take to improve competitiveness and attract more customer groups? Let’s start with the most basic:

Whitelist address. That is, a list of items/IP addresses, once they receive the initial verification, they will be allowed to access a certain system or protocol. In DeFi, we can verify an address through one or two trusted anchors and perform “KYC” work on users. Once the user is verified, all other projects within the same trust channel—that is, a group of virtual asset service providers, or VASPs that have agreed to follow the same set of rules and cooperate within a well-defined platform—can be used Its users get products and services without having to redo the entire KYC process.

This advantage has two main aspects. One is that users only need to show private files to one or two entities, thereby reducing the attack surface of any potential data hackers. The second is that VASP (Industry Application Service Provider) can reach a larger user base without increasing compliance costs. In addition, such a system can also allow individuals and entities excluded from traditional banking, savings and transaction ecosystems due to geopolitical reasons to invest in yield products and alternatives to high-interest loan accounts. DeFi is another option for these citizens and business owners to save, make money and trade.

A system that complies with Anti-Money Laundering (AML) and General Data Protection Regulation (GDPR). Institutional capital markets are strictly regulated and supervised by local and international regulatory agencies, with the goal of preventing money laundering and terrorist financing. Through the authentication framework, the project can verify and comply with existing anti-money laundering regulatory requirements, attract institutional capital, and protect user privacy by not requiring users to create copies of personal identity information.

Audited code base and third-party certification . Many blockchain projects are not built according to the minimum acceptable standards, so it is difficult for each user to verify through the code base whether the code is doing what it should do. By having third-party verifiers inspect the code and prove its honesty, functionality, and reliability, the threshold can be raised, making these projects more competitive and safer for investors.

Insurance. This is a relatively new field in blockchain, but some projects are solving risk management issues through decentralized insurance. Insurance projects can capture more audiences who are willing to take on more market risks and less security risks.

Restrictions and security deposits. By establishing protective and layered security measures, users can choose to increase or decrease their risk tolerance threshold. In addition, it allows projects to limit losses in negative events, such as investment and withdrawal limits.



The right to choose is the right way

I firmly believe that individuals should be free to choose whether to use their wealth for untested projects, unstable investments or cutting-edge technologies; we should not rely on the government to tell us what to invest, how much, and when to invest. It is ridiculous that one person can spend thousands of dollars on lottery tickets, but cannot invest the same amount of money in venture capital projects without crossing huge regulatory or bureaucratic obstacles.

This is why selectivity has become so important: it allows project builders to do what they do best, and makes users a key driver of project evolution. The lower the credibility of a project—especially when compared to a compliant and audited project, the less capital and user base flow to it. These are all market forces that should allow free flow.

At the same time, it should be clear that in our field, competition is carried out on different levels. Some require cooperation, while others do not. The overall goal is not to create a project to win a short-term war, but to create an industry that will change everyone’s lives and make everyone’s lives better, together with our financial wealth management methods. These methods are accessible to everyone, there is no unnecessary third party, and there is no uncontrolled subconscious supervision. This is an infinite game.

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