Opinion by: Raks Sondhi, Chief Operating Officer of Freedx
Composable, borderless and programmable ecosystems with policies made for simple, static financial systems present a major challenge.
Just in the last year only the decentralized financial platforms (DEFI) will be held $ 60 billion The amount of crypto assets locked in their protocols. However most of the constituents still lack a clear definition of a decentralized autonomous organization (DAO). This confusion slows down the change and overthrows the credentials of regulation institutions.
Lawmakers even assume that there is a centralized actor license, auditing or subpoena. However, the DAOs are deliberately decentralized, smart contracts operate autonomy and onchain assets can move without permission.
Although US regulators have begun targeting protocols under existing security laws, the courts are struggling to determine if autonomous software can be performed. Legacy regulation tools are not designed to facilitate real-time systems. These challenges have led to regulators around the world to test new crypto regulation techniques.
On a global scale, the Crypto-Assets markets (MICA) is trying to provide a single outline for EU regulation, going up to restriction on the use of tokens such as Tether’s USDT (USDT) That does not comply with its standards. In the US, SEC and Commodity Futures Trading Commission brought Legal action against Dao Participants and Defi Protocol. Some US states, such as WyomingThe laws have been passed to give DAO a type of corporate status.
However these efforts seem to be deeply limited and highly dependent on retroactive implementation, resulting in a chilling effect in which the builders are hesitant to move forward, the capital is seated, and the regulations are in a cat-and-mouse claim that does not benefit anyone or cannot solve the actual problem. They are slowly patching holes in a greatly dynamic and emerging space.
Manages software by emerged compliance
How do we stop chasing? The answer lies in some kind of policy-as-code solution. Instead of trying to fit decentralized technologies into traditional legal systems, we need a new policy infrastructure that as composable and programmed as technologies it needs to administer. We should build compliance layers directly in the code and a regulatory logic within the defi protocol infrastructure.
Related: The FCA has launched the BCP registered British Pound Stablecoin
Just as financial instruments are now made up of interoperable modules, a lending protocol should plug in specific compliance modules to fit their constituents. A DAO treasury should be able to report self-tax events in the incident. A stablecoin protocol must implement lists of penalties through zero-knowledge proof or onchain testimonies, and so on.
Some projects are already developing components for compliance with privacy and onchain compliance. Other projects are building architectural permissions to align regulatory requests. Although centralized exchanges are the exploration of onchain compliance metals that can apply to decentralized protocols.
Legal clarity is the key to Defi’s full potential
From a market outlook, embedding compliance has a potential de-risk defi, which attracts new investors and users. The legal clarity from the infrastructure policy directly reduce the implementation interval and enhance consumer protections.
For those who have developed, it opens the composability of regulations regulations, allowing them to choose from jurisdiction templates as they make UI components, which fits their codebase in real time to meet the emerging policy. No more guessing if your DAO token is a security, no longer wonder if a protocol is subject to reporting requirements, and less dependent on costly legal interpretation.
Although the sound-as-code sounds very useful, the programmable policy has its own risks. Like any other connected environment, the code can take advantage. We should think about what happens when a compliance module is compromised, mistakes or outdated. Management, security and upgrading remains important, but democratic administration is a pillar of blockchain technology. The regulation of the code regulation does not mean that it removal from the public’s responsibility, as it will lower trust and transparency, further pushing the web3 space from the adoption of the main.
We are at a branch -in -law, either repairing the intersection between the defi and the law or allowing the interval between the regulation and without the permission to change. One path leads to the other, efficient, transparent finances that are governed by the rules that everyone can see and understand.
Other paths lead to color -colored markets, chaos in implementation and capital flights.
The policy should be modularly changing and adapting to new structures, logics and ecosystems. The key to unlocking is that software management with software.
Opinion by: Raks Sondhi, Chief Operating Officer of Freedx.
This article is for general information purposes and is not intended to be and should not be done as legal or investment advice. The views, attitudes, and opinions expressed here are unique and do not necessarily reflect or represent the views and opinions of the cointelegraph.
