Decentralized Finance (DeFi) is a solution based on blockchain technology, which refers to peer-to-peer financial services, running on a public blockchain like Ethereum, without intermediaries, and running through contracts. smart.
There is more and more interest in cryptocurrencies and Decentralized Finance, which has allowed its inexorable advance in the financial market. An example of the progress of this disruptive technology is the fact that “users can interact with financial products and, very particularly, “generate programmable money instead of products”.
Anderson McCutcheon, Founder and CEO of Chains.com, believes that DeFi currently operates outside of a regulatory environment.in relation to other disruptive advances that have arisen in other ecosystems and that have “forever changed the way financial systems are designed”.
What’s more, states that cryptocurrencies are under the spotlight by regulators, setting their sights on anonymous transactions of digital currencies, while the regulations of the “FinCen focus on non-custodial hard wallets”.
The current infrastructure bill approved a few months ago by the United States Senate includes a section that deals with cryptocurrencies and the transactions that are carried out with them.Likewise, there is the proposal of a paid license for anyone who wants to participate in a network, including management activities or establishment of a node.
It also considers that the new proposals of the bill add difficulties to the sector and support the entities that can obtain the license. Which leads to the promotion of “centralization in an industry built around decentralization”, alienating occasional investors and unwilling to profit from the industry with such high commissions.
Promoting then, indirectly, an industry that is not decentralized despite the fact that it was created for that purpose.
Since its inception, even its own name says so “Decentralized Finance”, the sector was created so that there would be no type of intermediary between the user and the product other than the blockchain network through which the operation is carried out.
This mode of execution is the same that allowed anonymity to exist within DeFi from the beginning, according to McCutcheon “the deadly sin was that there was no one to hold responsible for the failure or success of these projects.” However, he stated that DeFi is still more “transparent” than CeFi.
But just as it allows the presence of anonymity, it also opens doors and even makes it easier for the scammer or attacker to carry out their fraudulent acts without later having someone to hold responsible.
DeFi Evolution
Years ago, when decentralized markets emerged, they did not have a specific guide on how to operate, therefore, each one did it according to what they considered beneficial for themselves, which led to a lack of agreement in DeFi.
Despite this, those who formed them had one point in common and that was, given their non-existent regulation, not to commit acts that would commit them to legal action against them.
In relation to this point Anderson commented that “In this 2022 (…) no one can talk about the volatility of the markets and even less of the cryptocurrency market, which compared to other industries, it must be recognized that today it is among the most conservative.”
As an example of this, a large part of the clientele of the blockchain market choose and prefer to have “taking into account tax and compliance considerations”.
In addition, also private currencies “they are under the scrutiny of the control bodies of nations and states.” which means that there is a constant legal presence in the medium.
Regulatory framework for cryptocurrencies
In Anderson McCutcheon’s opinion, the fact that many of the existing digital assets are traceable gives way to “each centralized entity can comply with the regulatory infrastructure of each jurisdiction in which it operates.”
Well, according to the above, Being traceable puts some pressure on cryptocurrency holders to stay up to date with tax matters.. The example discussed by Anderson was the payment of taxes on cryptocurrencies.
He said that “If a cryptocurrency participant fails to pay their taxes, the IRS does not hesitate to take action by sending the necessary letters to crypto holders advising them that they have an obligation to bring their tax obligations up to date.”
Similarly, various options and tools are currently under development to facilitate the regulation of cryptocurrencies. And that they can also be used in a specific framework that does not differ “of the functioning of classical financial systems.”
To close, McCutcheon expressed that “The closer we get to a clear and robust framework, the closer we will be to creating a more transparent space that offers more value to retail participants.”
“Full clarity on all aspects of cryptocurrency regulation – what can be done and what can’t be done – will normalize cryptocurrencies and make them safer and more accessible to all. As regulation becomes clear and simple, developers and entrepreneurs will be able to innovate and offer better products that are easier for everyone to understand.”
Disclaimer: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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