Crypto community reacts to increasing regulatory pressure
In the wake of tightening regulations and leaked Digital Commodities Consumer Protection Act (DCCPA), the crypto community debates over how and if DeFi should be regulated, while preparing for the worst.
US-based crypto exchange Coinbase and FTX CEO Sam Bankman-Fried — known as SBF — voiced their support for new regulations that could potentially treat decentralized exchanges like centralized entities and thus require a license and compliance with various KYC/AML regulations. While it’s unclear how such regulations can be enforced on a protocol level, most users interact with DeFi via websites such as sushi.com or aave.com, which are hosted on centralized servers and thus can be regulated.
In a 2-hour long debate with SBF on the Bankless podcast, early bitcoin adopter and founder of ShapeShift Erik Voorhees compared the current situation with the early days of the Internet. Voorhees pointed out that the community fought multiple battles to make sure that the Internet stays permissionless and websites such as email service providers aren’t obliged to authenticate the identity of their customers to prove their eligibility to access services.
Ethereum co-founder Vitalik Buterin shared his thoughts on the subject, saying that the crypto community shouldn’t be pursuing institutional capital at full speed, because that will lead to more regulations. According to Buterin, the ecosystem is not mature enough for such attention, which is akin to Satoshi Nakamoto’s opposition to WikiLeaks adopting bitcoin in 2010 due to similar concerns.
A poll conducted by the Crypto Council for Innovation revealed that the majority of the 1,200 US voters surveyed wants tighter crypto regulations. Only 13% of respondents owned cryptocurrency and 1% owned an NFT.
On that note, the amount of OFAC compliant blocks that censor sanctioned transactions has increased to over 66% since Ethereum transitioned to proof-of-stake (PoS), according to MEV Watch.
Earlier in August, the Office of Foreign Assets Control (OFAC) — a financial intelligence and enforcement agency of the U.S. Treasury Department — sanctioned Ethereum-based DeFi mixer Tornado Cash and addresses associated with the protocol.
DAOs adjust to a hostile regulatory environment
MakerDAO (MKR) — a decentralized autonomous organization behind US dollar-pegged stablecoin DAI — ratified the restructurization plan to make the protocol supposedly resilient to blacklisting. The plan seeks to split the organization into smaller MetaDAOs such as the Real-World Finance Core Unit, the Events Core Unit, and the Happiness Core Unit. The move, however, created two opposing factions within the organization: MetaDAOists and Constitutionalists.
According to the opposition, MakerDAO’s founder Rune Christensen used his outsized influence to sway the outcome of the vote in favor of MetaDAOs. The crucial governance vote had very low voter turnout with only 15% of circulating MKR supply participating in the poll and three quarters of the votes cast by Christensen-backed delegates, according to MakerDAO’s asset-liability manager Sebastien Derivaux.
Another big name in the DeFi space, the Sushi DAO — a community behind one of the largest decentralized exchanges by trading volume — has overwhelmingly voted for the creation of three entities in the Cayman Islands and Panama to oversee protocol’s core functions. The move comes one month after the US regulator unprecedentedly charged Ooki DAO with offering derivatives without a license.
In other news
According to Reddit’s chief product officer Pali Bhat, more than 3 million users have opened crypto wallets — known as “Vaults” — with 2.5 million created for the purpose of getting Reddit’s Polygon-based Collectible Avatar NFTs, some of which have been airdropped to platform’s most loyal users earlier in August.
Following EU’s recent package of sanctions on Russian citizens, US-based crypto exchange Kraken has joined the long list of crypto companies that stopped providing services to Russians. Earlier in February, Kraken CEO Jesse Powell refused to freeze all Russian accounts, adding that if their business model included freezing assets of residents of countries that unjustly attack other sovereign nations, then the US accounts would be first in line.
Dogecoin (DOGE) has more than doubled in price as Elon Musk’s long-awaited $44 billion acquisition of Twitter became official. The world’s largest crypto exchange by trading volume Binance has contributed $500 million towards Musk’s takeover bid and also created an internal team to brainstorm how blockchain and crypto could help Twitter solve various issues such as spam bots.