In brief

  • The latest The Decrypt Daily podcast is all about DeFi regulation.
  • Guests spoke of the potential benefits of regulation as DeFi grows.
  • However, there are likely serious challenges for enforcing such regulations.

The latest episode of The Decrypt Daily podcast is out now, and today host Matthew Aaron brought on experts from across the decentralized finance (DeFi) space to talk through the regulatory challenges facing the industry.

While some in the crypto space see “regulations” as a dirty word, the guests generally pointed to some level of oversight as being a positive for the future growth of DeFi. Erick Pinos, Ecosystems Lead for the Americas for blockchain platform Ontology, suggests that DeFi regulation from the US Securities and Exchange Commission would be beneficial.

“I don't think that the SEC coming in will necessarily mean that the party's over or that things will stop,” he explained. “Ultimately, I do think it's going to be good for the space because there is just a lot of scams happening now and it is getting really egregious—the level of DeFi scams and pump and dumps that are occurring.”

Jason Wu, founder of savings, loans, and payments network DeFiner, suggested that regulation is key for the DeFi market to grow from its current size to potentially astronomical levels. That won’t happen in a “Wild West” environment, and the average consumer is not going to be pulled into a market that is rife with scams and uncertainty.

“I think that regulation is good for the long-term development of DeFi, because you cannot circumvent or go around regulation,” said Wu. “If you want this industry to grow from its current $10 billion to a trillion-dollar or $10 trillion industry, regulation is necessary.”

Regulating DeFi may be much easier said than done, however. Decentralized finance is not only conceptually very different from the centralized systems, but also functionally distinct. Once a decentralized, open-source network is up and running, regulators may be limited in their response given the lack of centralized operational control.

Zaki Manian, co-founder of cryptocurrency infrastructure firm Iqlusion Inc, suggested that regulators may try to make an example of a particular team or project that runs afoul of oversight in the future, but that the network may well continue running in spite of any punishment. And that’s if regulators even won such a case.

“Unfortunately, for regulators, I think a lot of the stuff that happens before a project is live is really covered by the First Amendment. It's talking about ideas, it's writing code, it's creative expression,” said Manian. “And there's a very small window between that and having a live project as more and more of the software matures.”

“This puts regulators in a bit of a tough spot because they can go after [someone] and there can be civil action or criminal action for violating securities laws,” he added. “But at the end of the day, it doesn't put the genie back in the bottle.”

Tune in to The Decrypt Daily for more perspective from all three guests about the potential for DeFi regulation and the challenges ahead. Subscribe on iTunes and continue to be informed about the latest happenings in cryptocurrency, blockchain, and decentralized tech.