US Government plot to kill defi or regulation to help defi go mainstream?

By Joe Salameh | The Digital Gold Rush | 16 Jan 2022

Mid to late 2021 the white house introduced a $1 trillion infrastructure bill which appeared to be worded in a way that anyone involved in the crypto ecosystem may be classified as a "broker" this could include miners, validators & software developers. It implies that anyone involved in the ecosystem would have to capture the details of every customer/transaction and report it to the government. Many in the crypto space saw this as a burden crushing regulation that would destroy innovation not to mention decentralised finance (DeFi), which I still believe is the prime target here because banks absolutely loath DeFi as it takes away control from the legacy banking system. The reason I say this is because the burden of mandated reporting only applies to proof of stake alt coins, this to me is nothing more than a perfectly calculated attack on DeFi.
Legacy banking system has been aware of decentralised finance since its inception, but has not been a viable threat to them until recently as use case & adoption rates of DeFi are at an all time high. The bill would regulate DeFi out of existence with compliance costs, this appeared to many in the crypto space as a sinister attack on crypto namely DeFi.

As many crypto advocates see US regulation as an afront to blockchain tech, crypto and defi. Erik Pinos from Ontology says differently. He doesn't believe that this will hurt decentralized finance, his belief is that it will be beneficial for DeFi. Now I know what you're thinking (WTF?), either he has a valid point or his been smoking something. My initial thought was that this would pulverize DeFi out of existence but now after seeing his point of view I can see that it may not be all that bad in fact there may be some good that comes out of this. As crypto is still in the early stages some might say that DeFi is the wild wild west of the crypto-verse as there tends to be a lot of scams within the space. Erik believes this is one of the areas where regulation is needed most to help clean out the crypto riff raff. Once scammers are scared out of this space it might enable more trust amongst retail investors and therefore increase adoption rates. Erik believes that if crypto markets want to grow into a $10 trillion industry it will have to go through a regulatory process that helps ensure safety or at the very least minimize risk. Once this happens crypto will gain more trust from the wider non-crypto markets, institutions and retail investors, in other words this is what will help crypto gain mainstream adoption, in his opinion.

The belief is that once a decentralized protocols opensource code is live within the ether, government regulation is limited with regards to the protocol. This doesn’t mean they can’t bring charges against a person or company who created the DeFi protocol.

Despite US government regulations DeFi coins have recently shown new all-time highs in the midst of a stalling crypto market. Over the last month yearn finance has climbed 49% this may have been due to yearn finance launching a new buyback program. Uniswap up 5.2% believed to be due to CivTrade launch on Uniswap v3 and finally Aave is up another 6.5% thanks to the launch of RWA’s (Real World Assets) this protocol allows companies/businesses to tokenize aspects of their operations.

So is regulation good for DeFi or crypto in general that is yet to be realized, however there are many pros and cons. While regulations may make it safer and help gain further mainstream adoption, the real question is will it be as profitable? I would have to say probably not, because let's all face it the real profits are made before something gains mainstream momentum.

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Joe Salameh
Joe Salameh

Crypto researcher, investor and trader

The Digital Gold Rush
The Digital Gold Rush

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