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DeFi is no longer decentralized — compliance is undermining decentralization
The post DeFi is no longer decentralized — compliance is undermining decentralization appeared on BitcoinEthereumNews.com. Opinion by: Artem Tolkachev, Web3 investor When decentralized finance (DeFi) first emerged, the core idea was simple: financial freedom, transparency and the absence of centralized control. Smart contracts were meant to replace banks, liquidity was to be distributed globally, and users were supposed to have complete control over their funds. It sounded like a dream. People embraced that dream, adopting DeFi despite technical issues, poor UX and low liquidity. In the last two years, DeFi has evolved significantly, addressing most of its significant problems. The core concepts of decentralization and freedom have, however, begun to crack. Compliance, which once seemed entirely unnatural to this ecosystem, is now being integrated into DeFi. Previously, the primary risks in DeFi were related to smart contract hacks and low liquidity. Today, the biggest threat comes from over-compliance. We now see cases where users lose access to their funds without warning, without recourse, and without transparent criteria. There is no clear regulatory body to protect users. DeFi projects are introducing compliance mechanisms, but users remain completely defenseless against potential abuse. This is especially ironic, as DeFi was created as a space free from regulation, yet users are now subject to Anti-Money Laundering (AML) mechanisms without legal recourse. How does compliance work in crypto? In traditional finance, compliance mechanisms aim to prevent money laundering, tax evasion and terrorist financing. In crypto, compliance is enforced through transaction monitoring and wallet labeling. Private analytics firms play a central role, building complex risk assessment models and assigning wallet risk scores based on criteria they deem relevant. These services operate closed and unregulated, yet regulators have been actively pushing licensed exchanges and services to adopt their tools over the past decade. Recent: DeFi is set for a longer, stronger DeFi summer One major issue that any user can face is…
The post DeFi is no longer decentralized — compliance is undermining decentralization appeared on BitcoinEthereumNews.com.
Opinion by: Artem Tolkachev, Web3 investor When decentralized finance (DeFi) first emerged, the core idea was simple: financial freedom, transparency and the absence of centralized control. Smart contracts were meant to replace banks, liquidity was to be distributed globally, and users were supposed to have complete control over their funds. It sounded like a dream. People embraced that dream, adopting DeFi despite technical issues, poor UX and low liquidity. In the last two years, DeFi has evolved significantly, addressing most of its significant problems. The core concepts of decentralization and freedom have, however, begun to crack. Compliance, which once seemed entirely unnatural to this ecosystem, is now being integrated into DeFi. Previously, the primary risks in DeFi were related to smart contract hacks and low liquidity. Today, the biggest threat comes from over-compliance. We now see cases where users lose access to their funds without warning, without recourse, and without transparent criteria. There is no clear regulatory body to protect users. DeFi projects are introducing compliance mechanisms, but users remain completely defenseless against potential abuse. This is especially ironic, as DeFi was created as a space free from regulation, yet users are now subject to Anti-Money Laundering (AML) mechanisms without legal recourse. How does compliance work in crypto? In traditional finance, compliance mechanisms aim to prevent money laundering, tax evasion and terrorist financing. In crypto, compliance is enforced through transaction monitoring and wallet labeling. Private analytics firms play a central role, building complex risk assessment models and assigning wallet risk scores based on criteria they deem relevant. These services operate closed and unregulated, yet regulators have been actively pushing licensed exchanges and services to adopt their tools over the past decade. Recent: DeFi is set for a longer, stronger DeFi summer One major issue that any user can face is…
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