Sam Bankman-Fried draws fire from DeFi proponents after regulation proposal

Decentralized finance proponents have taken to Twitter to criticize Sam Bankman-Fried after the FTX CEO shared an "industry norms manual" that suggested websites facilitating trading on decentralized exchanges should be regulated. 

Bankman-Fried's suggestion of regulation for tools enabling retail traders to access DeFi protocols triggered horror among those who argue apps like Uniswap are simply software, not a legal entity that can be censured. To DeFi proponents, these decentralized exchanges (DEXs) are different beasts to the classic central counterparties required in traditional finance: they exist purely as code allowing individuals to trade with one another. 

"If you host a website that makes it easy for U.S. retail to connect to and trade on a DEX, you would likely have to register it as something like a broker-dealer/FCM/etc. You would also potentially have KYC [know your customer] obligations," Bankman-Fried wrote on Wednesday. At the same time, the crypto exchange executive said it's "extremely important that on-chain code and DeFi remain free and open, and uncensored."

One particularly loud voice is that of scupytrooples, the pseudonymous founder of DeFi protocol Alchemix, who tweeted a list of unsubstantiated complaints against Bankman-Fried. 

"I see them using the playbook of large corporations, where they ascend to the top, and then get involved in lobbying to make rules favorable for them to hurt the competition, and ultimately cement their position there," scupytrooples told The Block in separate comments. "No different from Amazon, Exxon Mobil, Goldman, etc."

"He's been on the record that he doesn't care about crypto and is only here for the money," they continued. "It's plainly obvious to see he is not a good actor in this space."

Bankman-Fried didn't immediately respond to a request for comment from The Block.

'A cancer on this ecosystem'

Anthony Sassano, a well-known independent Ethereum educator, also criticised the FTX CEO, who is often known by his intitials.

"SBF is and always will be a cancer on this ecosystem," he wrote to his 225,000 Twitter followers. "Anyone supporting him and his cronies should be ashamed."

Sassano's statements came in response to Scott Lewis, the founder of DeFi Pulse and other projects, who has also been critical of Bankman-Fried.

"SBF trying to get a bad law passed," Lewis stated on Twitter. "Now is the time to get loud and fight."

Specifically, he suggested boycotting both FTX and "crypto media on Sam's payroll," as well as denylisting FTX users from airdrops.

'Better to have a dialogue'

The list of high-profile crypto-related accounts on Twitter sharing similarly negative sentiments is long, while those defending Bankman-Fried's proposal are few and far between.

Those coming to Bankman-Fried's defense tended to cite the belief that regulation in the crypto industry is an inevitability. "Better to have a dialogue about it than to pretend that crypto is immune to regulation or ought not be regulated," shared one account, which Bankman-Fried retweeted.

Others argue that the FTX CEO's proposed regulations are a necessity to onboard more institutions into crypto. "Unpopular opinion: I am intimately familiar with conversations happening with lawyers at public companies who want to get into crypto," noted one account. Without sharing specifics, they continued, "SBF is right. People might not appreciate that now, but they will in the future."

Bankman-Fried himself, meanwhile, noted that he is open to the idea that he is wrong.

Sam Bankman-Fried's crypto exchange, FTX Trading Ltd is incorporated in Antigua and Barbuda. Its subsidiary, FTX Digital Markets Ltd is licensed under The Bahamas' Digital Assets and Registered Exchange Act, 2020. As such, it is regulated by the Securities Commission of the Bahamas.

Bankman-Fried has donated large sums to U.S. politicians and has testified before the U.S. House Committee on Agriculture.

Critics argue that Bankman-Fried's money and energy are being spent to benefit his own company, as opposed to the wider industry. However, FTX is facing legal scrutiny from U.S. regulators regarding its adherence to financial laws. Specifically, an investigation by Texas regulators may affect the exchange's proposed purchase of bankrupt crypto lender Voyager's assets.