With debates raging about potential DeFi regulation, Ethereum co-founder Vitalik Buterin has broken down what he sees as productive solutions.
Buterin noted that the two main regulatory goals are protecting consumers and making it harder for bad actors to move money around, according to a tweet thread. He suggested three ways of achieving this — such as limiting leverage on DeFi protocol front-end websites, requiring transparency about what audits have been done and restricting access to tools through the use of knowledge tests.
Buterin added that he would like to see zero-knowledge technology being used to meet requirements like these. This technology allows for something to be mathematically proven without necessarily giving away the information behind it.
He also criticized some other potential ways of regulating DeFi protocols. He said that putting know-your-customer requirements on DeFi front ends would only annoy users and not frustrate hackers. This is because bad actors interact directly with the protocols and don’t need to access them via the front ends. He added that centralized exchanges are a much better place for this type of regulation.
Kicking the hornet’s nest
The Ethereum co-founder claimed that the crypto industry needs more time to mature before it’s ready for mainstream adoption, which would come with more stringent regulations.
Buterin added he was happy that a lot of the exchange traded funds are getting delayed — giving more time for the crypto industry to develop and improve.
“Basically, especially at this time, regulation that leaves the crypto space free to act internally but makes it harder for crypto projects to reach the mainstream is much less bad than regulation that intrudes on how crypto works internally,” he said.
Buterin’s comments come on the back of widespread debate within the crypto community on how it should be regulated. The debate has largely focused on comments made by FTX CEO Sam Bankman-Fried, who created a possible manual for regulating the industry. Since then, he has debated the issue with ShapeShift CEO Erik Voorhees and, in light of a lot of backlash, has seemingly given up fighting so hard and has let “crypto Twitter” take charge.
Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.
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