Permissionless financial protocols will survive government and corporate efforts to impose traditional financial controls on DeFi.
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Decentralized finance (DeFi) protocols will survive government and corporate efforts to impose traditional financial regulations designed to create a walled garden of permissioned digital systems, according to Will Reeves, CEO and co-founder of Bitcoin () rewards company Fold.
Reeves told Cointelegraph that regulatory proposals requiring DeFi protocols to within smart contracts, or other similar traditional financial (TradFi) regulations, will backfire, as did efforts to control the spread of information on the internet.
He also warned that governments and legacy financial institutions will use TradFi incentives to drive people to permissioned custody through traditional investment vehicles like (ETFs), which have benefits over holding crypto directly, including use as collateral for loans. He added:
“This is simply a chapter that will lead to an inevitable victory for these open networks. Over time, they will win, but along the way, you’re going to see regulations and things meant to delay progress.”
Entrenched financial institutions are while they position themselves to enter the crypto sector over the next decade, Reeves told Cointelegraph.
Despite this pressure, from legal liability remains the biggest priority to protecting permissionless financial protocols from centralization and regulatory overreach, he said.
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As legacy financial institutions continue to in crypto and demand tighter government regulation over the sector, privacy and financial sovereignty advocates worry the increased scrutiny could undermine the core principles of crypto and DeFi.
DeFi protocols promise to democratize finance and bank the unbanked, allowing anyone in the world with a cellphone and an internet connection to shift value and risk through an open, global financial system.
Forcing government-issued credential checks or imposing other (KYC) requirements onto DeFi protocols undermines permissionless access, decentralization, and increases , critics say.
These risks would also make crypto and DeFi indistinguishable from the legacy financial system they were meant to replace, critics of these policies argue.
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