Opinion of: Hedi Navazan, chief of conformity at 1inch
Web3 needs a clear regulatory system which addresses the bottlenecks of innovation and user safety in decentralized finance (DEFI). A unique approach cannot be made to regulate DEFI. The industry needs personalized risks that balance innovation, safety and compliance.
DEFI challenges and rules
A common criticism is that regulatory control leads to the death of innovation, retraced this situation to the Biden administration. In 2022, uncertainty for cryptographic companies increased following prosecution against Coinbase, Binance and Opensea for alleged violations of securities.
Under the American administration, the Securities and Exchange Commission agreed to reject the trial against Coinbase, while the agency reversed the cryptographic position, alluding to a path to regulations with clear borders.
Many would say that the same risk is the same rule. The imposition of traditional financing requirements on DEFI will simply not work from many aspects, but the most technical challenges.
Opening, transparency, immutability and automation are key parameters of DEFI. Without a clear regulation, however, the widespread question of “Ponzi type diagrams” can divert the development of effective use cases of innovation to the conjuration of a “misleading perception” of blockchain technology.
The advice and clarity of regulatory organizations can reduce significant risks for retail users.
The decision -makers must take the time to understand the architecture of Defi before introducing restrictive measures. DEFI needs regulatory models based on risks that include its architecture and deal with illegal activity and consumer protection.
Self -regulating frameworks cultivate transparency and security in deffi
The entire industry strongly recommends implementing a self -regulation framework which guarantees continuous innovation while simultaneously guaranteeing consumer security and financial transparency.
Take the example of DEFI platforms that have adopted an self -regulation approach by implementing robust security measures, including transactions monitoring, portfolio screening and implementing a black list mechanism that restricts a suspicion portfolio with illegal activity.
Solid security measures would help define projects to monitor onchain activity and prevent improper use of the system. Self-regulating can help projects to operate with greater legitimacy, but it may not be the only solution.
A clear structure and governance are essential
It is not a secret for anyone that institutional players await the regulatory green light. Adding to the list of regulatory executives, markets in crypto-active assets (MICA) define springers for FUTURE DEFI regulations which can lead to the institutional adoption of DEFI. It offers companies a regulatory clarity and a framework to operate.
Many cryptographic projects will have trouble and death due to higher compliance costs associated with mica, which will apply a more reliable ecosystem by requiring increased transparency of transmitters and quickly attracting institutional capital for innovation. Clear regulations will lead to more investments in projects that support investors.
Anonymity in the crypto disappears quickly. Blockchain analysis tools, regulators and companies can monitor suspicious activity while preserving user’s confidentiality to some extent. Future adaptations of the Mica regulations can allow compliance DEFI solutions, such as compliant liquidity pools and blockchain -based identity verification.
Regulatory clarity can break obstacles to integration define
Another important barrier. Compliance agents frequently attend the banks erect walls to prevent crypto. Banque supervisors distance companies that do not comply, even if it is an indirect examination or fines, slamming doors on financial operations of cryptographic projects.
Clear regulations approach this problem and will comply with a facilitator, not a barrier, for the integration of defi and banking. In the future, traditional banks will integrate DEFI. The institutions will not replace banks but will merge the effectiveness of DEFI by the structure of Tradfi.
Recent: Hester Peirce calls for dry regulation to “cook in” cryptography regulations
The repeal of accounting staff Bulletin (SAB) 121 in January 2025 mitigated the accounting charges so that banks recognize the cryptographic assets held for customers as an active and passive on their balance sheets. Previous laws have created obstacles to the increase in capital reserve requirements and other regulatory challenges.
SAB 122 aims to provide structured solutions of compliance reactive to proactive financial integration – a step towards the creation of Synergy DEFI and Banking. Cryptographic companies must always follow the accounting principles and disclosure requirements to protect cryptographic assets.
Clear regulations may increase the frequency of bank use cases, such as custody, reserve support, asset tokenization, stablecoin issue and account offer to digital asset companies.
Build bridges between regulators and innovators to define
Experts emphasizing the concerns about the death innovation of Defi on regulations can now resolve them using “regulatory sand bins”. These startups provide startups with a “secure zone” to test their products before engaging in large -scale regulatory mandates. For example, startups of the United Kingdom under the Financial Conduct Authority thrive using this “test and error” method that accelerated innovation.
These allowed companies to test innovation and commercial models in a real framework under the supervision of the regulator. Sandboards could be accessible to approved entities, unregulated startups or companies outside the financial services sector.
Likewise, the European Union DLT pilot regime increases innovation and competition, encouraging market entry for startups by reducing initial compliance costs thanks to “doors” that align legal frameworks at each level while improving technological innovation.
Clear regulations can cultivate and support innovation through the open dialogue between regulators and innovators.
Opinion of: Hedi Navazan, director of compliance at 1inch.
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.
