Opinion by: Raks Sondhi, chief of the Freedx exploitation
Going to composable ecosystems, without borders and programmable with rules established for simple and static financial systems presents a fundamental challenge.
In the past year only, decentralized financing platforms (DEFI) held more than $ 60 billion in cryptographic assets locked in their protocols. However, most of the courts still have no clear definition of a decentralized autonomous organization (DAO). This confusion slows innovation and undermines the credibility of regulatory institutions.
Legislators always assume that there is a centralized player to dismiss, audit or assignment. However, DAOs are intentionally decentralized, intelligent contracts work independently and onchain assets can move without authorization.
Although American regulators have started to target protocols under existing securities laws, the courts are struggling to determine whether autonomous software can be responsible. The inherited regulatory tools were not designed to supervise the systems that evolve in real time. These challenges have led regulators worldwide to try new approaches to cryptography regulation.
Globally, Crypto-Asets (Mica) markets are trying to provide a unified framework for EU regulations, going so far as to restrict the use of tokens like USDT de Tether (USDT) which does not comply with its standards. In the United States, the sec and commodity future trading commission brought in legal action against the participants in the DAO and the Defi Protocols. Some American states, such as Wyoming, have even adopted laws to give the DAO a kind of business status.
However, these efforts seem deeply limited and are strongly based on the retroactive application, which results in a scary effect where the manufacturers hesitate to move forward, the capital is inactive, and the regulations are in a pursuit of cats and mice which does not benefit or does not solve the real problem. They slowly harass holes in a very dynamic and evolutionary space.
Governing software thanks to integrated compliance
How to stop running after? The answer lies in a kind of strategy solution as a code. Instead of trying to integrate decentralized technologies into traditional legal systems, we need a new political infrastructure which is as composable and programmable as the technologies it must supervise. We must build compliance layers directly into the code and integrate the regulatory logic within the infrastructure of the DEFI protocols.
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Just as onchain financial instruments are now made up of interoperable modules, a loan protocol should be able to connect specific compliance modules to meet their jurisdictional needs. A DAO treasure should be able to self-assess tax events as they occur. A stablecoin protocol should be able to apply the sanctions lists through zero knowledge or onchain certificates, etc.
Some projects are already developing components for preserving privacy and ONCHAIN’s conformity. Other projects constitute authorized architectures to align with regulatory requests. Even centralized exchanges explore onchain compliance rails which could apply to decentralized protocols.
Legal clarity is the key to the full potential of
From the market point of view, integrated compliance has the potential to deactivate DEFI, attracting new investors and users. The legal clarity of the integration policy directly into the infrastructure would reduce the difference in application and improve consumer protections.
For developers, it unlocks the composition of regulatory regimes, which allows them to select from jurisdictional models as they make components of the user interface, by adapting their code of code in real time to respond to evolutionary policy. No longer guess if your DAO token is security, no longer wondering if a protocol is subject to declaration requirements and less dependence on an expensive legal interpretation.
Although policy as a code seems very advantageous, programmable policy has its own risks. As with any other connected environment, the code can be used. We must ask ourselves what would happen when a compromise module is compromised, crummy or becomes obsolete. Governance, security and upgrading remain essential, but democratic surveillance is a pillar of blockchain technology. The integration of the regulation in the code should not mean withdrawing it from public responsibility, as this will decrease trust and transparency, pushing more the web3 of the consumer adoption.
We are at a crossroads, either as a reinventor of the intersection between DEFI and in law, or by allowing the widening of the difference between regulations and innovation without authorization. A path leads to inclusive, effective and transparent finances governed by the rules that everyone can see and understand.
The other path leads to gray markets, the application of chaos and the leakage of capital.
Politics must evolve and adapt modular to new structures, logic and ecosystems. The key to unlocking is to govern software with software.
Opinion of: Raks Sondhi, chief of the Freedx exploitation.
This article is for general information purposes and is not intended to be and must not be considered as legal or investment advice. The points of view, the thoughts and opinions expressed here are the only of the author and do not reflect or do not necessarily represent the opinions and opinions of Cointellegraph.
