Since Bitcoin, and the ensuing cryptocurrency space, started to gain mainstream recognition and became a powerful tool not only for individuals, but institutions, it also started picking up interest — or concern — from financial regulators.
Rightly so, the new space has burst onto the scene and promised the potential to be a new financial system with the power to disrupt the banks and topple the financial system as we know it. However, this narrative only held true for a short time in Bitcoin’s rise into the mainstream space.
Since the popularity of crypto has risen, its cypherpunks roots have had to be dampened down a bit in order to fit into the global space and fall under some sort of regulatory system. The anonymous nature of crypto, its borderless potential, and its lack of centralized control is what has really put off many financial regulators.
Still, a balance has been struck in many regards as the space has looked to embrace regulators to become a bigger, global force, while still demanding some of its decentralized aspects that make it so powerful.
But, as cryptocurrency has expanded, new sectors have emerged, such as DeFi — which, as the name states, is decentralized finance. This tool is aimed at providing financial services to many more people without the usual constraints of a centralized financial system — but this could be also coming to an end.
Recently, it was announced that ConsenSys is releasing a compliance service to help exchanges and DeFi projects analyze trading activities for tokens issued on Ethereum. Compliance may not sound like such a bad thing, but it comes with a Know Your Customer tool which hampers the core tenants of the burgeoning DeFi ecosystem.
This news has been met with mixed reviews in the community as popular crypto commentator Chris Blec states:
“My greatest fear was always that DeFi would use its centralized powers (incl admin keys) to please regulators. Ethereum’s unstoppable deep state Consensys is moving things in that direction with “DeFi KYC”. Dreams of decentralized finance on Ethereum are dimming.. maybe dead,” he tweeted.
Again, this balancing act comes into play with this new move from ConsenSys. Whenever there is decentralization, there is fear of anonymity and the use of this tool with no HQ for nefarious things. At the same time, the decentralized aspect means it becomes more powerful for people, especially those in the greatest need for it.
DeFi is something that can help billions of unbanked people have access to financial services many would not even consider because of their station. KYC may be useful for catching criminals and fraudsters, but it is a real hurdle for those without a bank account, and especially those who don’t have any identification.
Blec goes on to add:
“Consensys had a choice to make. Fight for privacy & decentralization for users… or develop a sustainable business model for Consensys? They chose a sustainable business model for Consensys, which would not be possible if they were constantly running from the Feds.”
His point is a good one. Crypto is touted as this amazing tool to change the world and disrupt all that is wrong with peak capitalism, bringing power back to the people when it comes to their finance. But actually, crypto is a business.
No company, not even ConsenSys, is going to fight against the regulators for the sake of the people — it is not only a losing battle, but an unprofitable one.
The world needs DeFi to be decentralized, but the regulators and the businessmen need something they can control, and unfortunately, it is those with money and power that often have the final say on such things