DeFi vs. regulators: who will win?

Transcript

hello everyone thank you for being here and listening to our talk with like a very catchy title um so d5 vs regulators who will win uh is it really a fight we'll try to answer those two questions today um and with like our perspective on how defy and in general decentralization really uh can enter into the broad broader uh world uh where we're living let's start very quickly by presenting ourselves marina maybe oh thank you so thanks again everyone to be here the last talk today

my name is marina i'm coming from slovenia and i'm a board member of the slovene blockchain think tank and i'm happy to have the possibility to present this today to you uh yeah i'm florian from germany and i represent a little bit the german crypto community we founded a blockchain association there in 2017 and um yeah happy to be here and present both the european and the german perspective thank you and i am simon porro i am i am the european uh responsible for european affairs at aidan the french crypto assets association and i was one of the co-founder of

ethereum friends so i've been involved in the ethereum community for quite a long time let's start without further ado um so first very important things we want to emphasis uh today is the narratives you know that the future is structured by narratives and what we are building can bring forward a lot of different narratives right we create a tool that is multi-purpose an open blockchain that is programmable with which you can do basically anything you want and anything is actually being built on this which means

positive things and maybe less positive things so the most important thing is basically what is the dominant narrative that will emerge with the things that we are actually trying to do because this narrative is a narrative that will go outside in the most broad wall in the broader world and this is a narrative that will create the reaction from outside of the community and this is something where probably the last the latest times were not that that good we've seen a lot of uh different things happening in the

outside of the crypto asset space that may think that people are more and more thinking about the crypto assets as a dystopia than rather than an ethiopia and this is really like the the the shift in the different narratives and the different ways of seeing the things that we are building this is what we see right when we talk about ethereum we see the community we see the things that are being built the defy we see the technology uh and and all the all those very things that are inspiring ourselves like to do to do better things and to create things that are meaningful for the society

and unfortunately most of the people outside they see the surface of the surface of things and this is basically what they see right so ransomwares that are used to pay uh ransoms uh so bitcoin used to pay ransoms and then the bitcoin consumption and then of course speculation so basically what they see if they stay on the surface is a technology that's that's burning the planet to pay ransoms and to fuel speculation well that's not a very good look obviously and this is where probably there's a work to do

like creating more meaningful narratives for the world um and today what's happening is that of course we are on a stage where the market is becoming really significant like the the the assets are becoming very very uh like big in size uh there's a lot of exchanges a lot of projects so every everyone is looking at what's going on in the crypto asset space today uh this includes governments agencies uh and all the people that are really deciding the rules for us as citizens uh and today most would say deep or economics most of the policy makers

don't really understand decentralization in public networks because they're not coming from from there and beyond the general lack of education there's an increased problem with like you know people who are already in in place uh i would say like all the the industries that are also have this very um surface-like view of what we are doing and they are of course spreading those views because that's also in their best interests to do so so we are in a place where in the places of power the discourse on crypto assets is not really improving that's something that we've seen because

we work of course in different organizations at the national level and we've been working for a year now pro bono together with the eu organizations commission and council and parliament members and we see the shift happening like in the way the discussions are going on a year ago nobody talked about environments nobody talked about speculation today those narratives are coming back and influencing the the work the work that is doing that is actually being done now so those are the people some of the people that are actually looking at us right now

and trying to decide what they will do with the crypto assets and this is like a very broad debate around you know how to access them how to regulate them and to control them and we'll see more about those in initiatives that are currently being drafted and those people they come from you know very traditional uh of course backgrounds most of them are not technical most of them are of course good willing people they're trying to do the best for the society and they are listening to the to the narratives to the to the basic the vision of what we are creating to decide what they will do with the regulation this is like very normal process

um you first decide you first have to determine whether the thing you are regulating is a bad thing as a good thing or maybe a neutral thing and then and then create the appropriate response to this and unfortunately because of this you know lack of probably like understanding as deep as we have because we are in the community and we we've been here for quite a long time and we we understand like the basics of this the way they see it like from a surface is like okay you're talking to me about a decentralized hedge fund what is this and who controls this um a small example i can give on this very simple from from a regulator i met uh it's he was asking me okay there's all this decentralized stuff

that i understand um but couldn't we just sue the ethereum foundation for everything that's happening on uniswap so the the level of understanding of really what's happening it's it's this kind of thing they're just trying to find someone to attract and to basically capture based on the way they are thinking about regulation so and maybe to add to this d5 has a very specific problem compared to the other decentralized use case is that it really encompasses maybe all the fees of the regulators because it's really

it's finance of course it's attached to speculation like because finance is attached to speculation in a way and from as a first glance like what regulator fear and what d5 can do it's basically the same thing so marina thank you so this is how the regulators see defy and this is what their fears are they think that is something that lacks control that is made for speculation it's shadow banking they associate what's happening in the d5 space in the decentralized space

uh to hacks uh or it's threat to a fiat dominance that's also i think very important and it is also discussed uh in the mikka as one of the goals it's something that is used to finance terrorism is something that is a very very much energy consumption and it's something that makes average joes losing money so of course they're concerned about the citizens but they see this like as a negative tool uh which everyone can use and of course for money laundering so it's something that it's very negative and it's something they see usually in the media

and this is how they relate to whatever we are talking about and doing here and trying to build so our narrative is this this is what we want to show to the regulators and to the people that are outside of our community uh this is what we're building this is what we are spending our energy to to do and we want to to build a world where it's like a new financial system we want to build finance that is ethical we want to build innovative products of course based on open source as most of the products are we want to build a system that is very

transparent and of course new payment systems better value distribution and all the things that i think you're all familiar with um so but what is the problem here and what we have seen in the last year working with the institutions and regulators this is not what they are seeing and they can't they actually can't come to this like they they can't read about this they usually don't have time or maybe then they don't have resources to understand what is our community about and what is really important whenever we are talking two projects about what's happening with the regulators what hap what's happening

with the new laws that they're drafting they say uh they can't stop defy um and in a way it's true so defy is unstoppable but it's not invincible in the future it could happen that they would prosecute developers deployers users or token holders it's also possible that there would be a prohibition to use institutions or normal customers so the ones outside of defy to limit defy and its use uses and also control put control at the gates so the ones that are onboarding people into the defy solutions and services like for example

exchanges and brokers etc and of course they can also take down domains and front ends which would still be very hard for people to access those services and the most important thing is that they would deny nobel prize for economics for vitalik so this is also a very important thing that we're focusing on okay um can i actually see the slides perfect um so where do we get from here right so um i think uh just to illustrate a little bit that we're not just fear-mongering but that actually this stuff is happening we just want to give two examples the

first one is this really interesting narrative that is emerging now on the side of international regulatory bodies but also national bodies for example in germany where we've seen this where the term wallet is slowly being changed to mean either a hosted or an unhosted wallet so when i came into this space of what it was simply a private key that i have on my computer that i used to sign transactions with today in the regulatory sphere this would be called an unhosted wallet and an unhosted wallet by definition is suspicious because nobody knows who controls the private key that

corresponds to that wallet address this is um a really concerning development and just recently in germany there was a proposal on the implementation of the so-called travel rule and it's literally literally said in the in the reasoning behind this that unhosted wallets are by default suspicious because they can be used for terrorism financing and money laundering right so these narratives that are circulating in the regulatory sphere are all centered around those negative perspectives on what we're building here as opposed to this really positive stuff that we are associating with it another illustration is uh this most

recent regulatory proposal on the eu level um called mica or markets and crypto assets which was drafted in response to essentially facebook announcing this libra stablecoin and uh the eu not knowing that you know there's not just libra but also a million of other interesting more decentralized projects just flat out created rules that make algorithmic and decentralized stable coins effectively illegal in europe like there is no way to run a decentralized stablecoin project in europe under these regulations since a decentralized project can not comply with the rules that are

stipulated in there so in the current draft which of course we still try to influence it's really really concerning for the whole european space looking into the future what else is coming right so it's not just europe with the mika regulation and the anti-money laundering regulation and the tax fraud and evasion regulation and different national level implementations of travel rules ico licenses crypto asset custody licenses wallet identification all these other things we also see in the u.s of course a less statute statute statutory law approach more an agency based approach

with the sec the cftc the occ all passing different kinds of regulations what's interesting is that in the u.s at least when it comes to stable coins there is a much more positive outlook so far as we can see but that of course could change as well there is what is called the financial action task force or fatf for short they are a kind of unaccountable international body that makes recommendations to states and governments of how to regulate uh how to make rules against money laundering and terrorism financing and they are making very strong recommendations against

essentially how blockchains and wallets are supposed to work at least in our mind and this is you know slowly but surely creeping into those national and international laws and regulations um so let's get to the meat of this right so what could a middle ground actually look like right so i think there won't be a world with no regulation that affects the dfi ecosystem the decentralized use cases in general open blockchains open value networks so all the stuff that we here at the fcc are excited about so what could actually a regulation look

like that preserves permissionless innovation financial inclusion and all the things that we care about while giving the assurances that regulators need in order to do their job right so this is something that we've all individually here been working on over the past four five six years but for the past year we've done that together on the european level making concrete proposals to the european regulators in order to really prevent this mika regulation uh from just killing all of d5 in europe and um there is a lot of you know things to draw from actually

that are also part of the decentralized ecosystem such as self-sovereign identities that could be used to provide some level of kyc in some areas of the d5 ecosystem for example and we definitely need the input of the whole community to actually come up with innovative solutions another aspect of course is self-regulation to maybe even pilot uh regulatory regimes that could later on be picked up by legislators and implement it as as proper rules um yeah what can we do as a community i think so a lot of people here in this room which

makes me really happy it shows that you care and so what we've seen from working now for a year more or less on the european level together is that we need many more organizations and individuals coming together to create those positive narratives that explain to regulators and lawmakers what we actually are all about why do we spend all our energy in creating these yield farming schemes and you know crazy d5 protocols right it's not about making a quick buck it's

really about building a better more inclusive financial system but this narrative right now does not reach the ears of the regulators quite the opposite they are being fed the liberal thought by market incumbents to believe that it's all about money laundering and terrorism financing and so on so as a community we need to be much more open and vocal about the values that we pursue with what we build here together and beyond this positive view on on what we do it's about not just education but actually coming up with concrete proposals that show an alternative path and it's

gonna be the positive narrative combined with a practical proposal of how to regulate it in a way that makes sense that could ultimately lead us to a future where in europe we can actually have defy and not actually make it just a fringe kind of shadow banking economy self-regulation of course is another aspect to this and yeah i think we want to invite all of you to um i don't know approach us and and uh i don't know do your own thing in order to promote that now the three of us here um having worked together for a year on the european level decided actually to

go a step further and intensify our endeavors to talk to the regulators in particular in europe and so we think uh what we can do is be a neutral voice that represents all of the decentralized ecosystem uh that can share this positive ethos uh behind the long-term vision of crypto right creating this more inclusive system for everybody we think that we can have the best impact if we represent all the public networks that are all in this together so this is not about you know just the ethereum ecosystem or just you know whatever ecosystem this is something that all the

different blockchains out there and all the projects building on those blockchains are affected uh by uh you know equally so it should it's about promoting this positive vision in a way that is credible and neutral we're calling this initiative uh under which we operate the european crypto initiative and we've spent a lot of time over the past year to connect with all these institutions on the eu level and we actually already had quite a positive impact on the current draft of this mika proposal we were able to introduce a few exceptions for defy use cases which is incredibly rewarding to see but we also

understand that our journey is just starting right so just yesterday or two days ago there was a new aml package proposed by the eu and it also addresses anonymous accounts with exchanges and other things around money laundering so there is now a lot of regulation coming and we all together but also the three of us will do our job to uh to make this to make the outcome more positive for the decentralized space yeah so um that's pretty much our message let's stop the fudd and spread the positive crypto vibes

everywhere we can let's be more vocal of our vision let's not stop at yield farming let's actually make the world better together and um yeah please contact us here approach us send us an email we're crypto minus initiative.eu we don't really have a website yet so just send us an email and um yeah we look forward to talking to all of you thank you very much very much [Applause] um do we have to have one question we have one one minute yeah there's one there

um that uh certain d5 protocols are uh exploring whereby i mean how i'm envisioning there's a central sort of kyc uh company or something that creates a white list and then there are these walled gardens within each protocol that is only accessible to like kyc'd users how do you see that playing out is this a viable approach is this at completely at odds with d5 just let me hear your thoughts on that okay um that's my personal review we

haven't shared anything on this but i feel like it's an interesting like initiative to like make a step towards like what the regulator wants this is not something that would be like feasible practical for the rest all the community of course and and the most like innovative products and if you want to have some form of composibility between the protocols and some form of you know complex products that you want to create of course you cannot just have this world garden to every single piece of everything so this is um something that makes sense to just uh yeah create a positive um approach towards some form of um

institutional investors which is always good like to make them understand what we're building and and protocols and and yeah basically make them more tech zoe with what we're doing um this is probably not the end state and the end game of how everything will evolve well that would be my answer i don't know i would just add to that that uh i it's it's kind of the obvious way to approach it i would say uh to have this kyc oracle and you can only transact on that protocol if if you have this if you're on the whitelist essentially but it would in a sense totally defeat the purpose of uh financial inclusion in a sense uh

i had a practical experience with that i was involved in a fully regulated like baffin german regulator approved token sale and it was open to the world and we had hundreds maybe thousands of people from africa that wanted to buy tokens and they had no document to go through a kyc process like they literally could not kyc although they wanted to because their government doesn't issue a document that is recognized by some kyc provider as legitimate um and there are other things like uh yeah there's a lot of problems around this so um we cannot just push for this as the solution and then be done with it i think we would we would do a dis favor

uh to the space so i think the any solution needs to be more fine grained but it's still good to see that some protocols are starting to think about this and are looking at this as a potential solution yeah hi guys thanks for the speech yeah uh just one question what do you think about travel rule and the things that cypher trace and elliptic doing maybe this will solve problem maybe just a part of a problem no that's a very tricky question uh trouble rule is is a rule that was basically extended from the financial sector to the crypto

asset sector uh two years ago with the the fatf recommendations that that went out in 2019 um and since then the industry has been trying to find an answer to this because well basically travel rules mandates you to uh for every transfer that you are implementing uh with an another entity to transfer some form of information to this entity about the identity of the sender and the identity of the beneficiary and some form of verification well some it's really a tool to add layers of verifications that aims to reduce the risk of terrorism financing and all the likes um and this is something that the crypto

asset industry in general and a lot of actors that are concerned by this and this value by those obligations have stepped up to to create tools um of course uh people like uh of course elliptic and inside tourists this is basically their job that's what they're doing already like providing data about blockchain and then you have ad hoc initiative industry initiatives that's been created so this is really like uh it's a it's mandatory anyways there's no way around it it's really something as soon as the fatf creates an obligation then almost the whole world will follow this is how it works today so as a crypto asset industry western small we don't have the legitimacy of the big

actors and it's really difficult to actually have a meaningful conversation with these kind of organizations um this is part of the problem so this is something that's enacted now and this is not really something where um anything can be done and this is where this is even more the case now that the eu just proposed like an extension of course compile that is completely compliant with fatf there's probably a way because it's only subjecting the centralized entities um as of today so as soon as it is the case it's somewhat possible to do this in a technical way it's a bit complex but there's solutions to do this but then

of course you know it's step by step and the latest recommendations of the fatf were quite concerning on this we did a lot of comments because they were basically expanding the rules to all the decentralized use cases which is completely absurd from a technical practical perspective of course but still very concerning so yeah i would say trevor wu is like an extension that doesn't necessarily make sense in the cryptocurrency space but we don't we can't do anything about it it could be implemented by centralized entities but then if there's some form of extension to something else then we we have a very big problem to write a positive story that you're

asking i mean you heard me yeah so the question was whether i started streaming so i need to repeat the streaming hi streaming um so yeah are you going to operate as a tower yourself i think it would be interesting uh and but also because i think there will be interest in the community for people who want we need journalism we need to tell we need about storytelling and how can we incentivize people to write great stories could be one way to contribute to that tao and then of course you as well yeah so we actually are considering this um the way we are working is also trying to do some steps towards the regulators and everything so we actually need in any case like some form of association

incorporated somewhere and that would have like an official recognition and everything all the likes so um this is like the first form of it but yeah this is of course something that we are discussing and especially in order to incentivize and help people contribute to what we are trying to do yeah also maybe something that we have not uh emphasized enough in the presentation is that we really want to be as open as possible so we have a github where we already published a few documents um like open source and creative commons and the idea is really to be like allow everyone to just contribute directly to the documents be open in communication channels and everything

what we are seeing and what we have done in the past is actually being like a translator from this community to the regulators so when we go to the regulators you know we we had jokes like we are wearing a tie and like talking their language and then here we are coming actually from this space so this is also what is very important to uh to make people understand what's happening and like also speaking to the people in d5 uh like kind of translating what the regulators think and how they see this space and what they want to do in the future well thank you very much thank you you