Odaily Frontline | Is decentralization the best solution for DeFi to deal with SEC supervision?

This article comes fromDecrypt, original author: Robert Stevens

Odaily Translator |

Summary:

This article comes from

, original author: Robert Stevens

Odaily Translator |

secondary title

Summary:

- Two major DeFi protocols have adopted decentralization measures this week;

- Lawyers believe that decentralization is necessary to appease regulators, as many DeFi projects currently face the risk of being harmed by regulators;- The leaders of the two DeFi protocols, Aave and Synthetix, said they are not worried about it.The third and fourth largest DeFi protocols, Synthetix and Aave, took steps this week to further hand control of the network to token holders, ending the project party's domination of the network built over the past few years.

Decentralization of the network is a card often played by DeFi projects. This is to give control to users, so that users can use this right to vote on the future of the network without having to rely on a centralized organization.

Lawyers say DeFi projects are destined to attract the attention of regulators, who are starting to pay more attention to this booming,

Market cap has reached $4 billion

industry. Since June 1st, Synthetix's total value locked (TVL) has quadrupled to $496 million; Aave's peaked at $600 million, a nine-fold increase.

"Developers who create a marketplace for synthetic securities are playing with fire," said Josh Garcia, a partner at law firm Ketsal in New York.

But the founders of Aave and Synthetix say there was no risk from the start. And what if regulators find a way to prosecute them? Faced with such doubts, Aave founder Stani Kulechov said: "It is unstoppable."

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out of central control

It starts with a statement from the Synthetix Foundation, which has until now been the non-profit “steward” of its decentralized exchange offering tokenized stocks, fiat currencies and commodities. On Tuesday, July 28th, Synthetix announced that the Synthetix Foundation has officially withdrawn from management. As of today, the Synthetix protocol is controlled by three Decentralized Autonomous Organizations (DAOs), protocolDAO, which controls protocol upgrades and variable configuration; GrantsDAO, which accepts community donations and allocates funds; and manages and deploys funds to respond to donors and synthetixDAO for other project needs. This means that Synthetix has transitioned from the foundation governance model to the DAO governance model.

According to previous news, Synthetix plans to transition from the foundation governance model to the DAO governance model in 2020. In February this year, it established GrantsDAO, a decentralized autonomous organization composed of 5 members, and began to accept project proposals. GrantsDAO will be responsible for reviewing project proposals that contribute to the Synthetix ecosystem. After approval, they will be funded with SNX tokens, and all proposals will be published on the website.

A few days later, decentralized lending protocol Aave followed suit. Kulechov proposed that “Aavenomics” will be the latest milestone on the “road towards more decentralized governance.” Aavenomics introduces an enhanced governance system that allows token holders to vote on future network upgrades. "Effectively, we do what the community decides to do," Kulechov said.

The other side that needs to be mentioned here is: regulators are beginning to pay more attention to DeFi. Earlier this month, the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC) jointly announced that they had reached a settlement with crypto wallet provider Abra over the charges. In the SEC's case, the agency accused Abra of selling securities-based swaps to retail investors without registration. The CFTC accused Abra of illegally conducting over-the-counter swap transactions of digital assets and foreign currencies with overseas customers and violating registration regulations. Abra will pay a total of $300,000 in fines ($150,000 to each agency), according to court documents.

Kain Warwick, a former director of the Synthetix Foundation, said that this is similar to the product provided by Synthetix, except that the product is traded between users of Synthetix, and the owner of the agreement does not charge fees, while Abra is a for-profit entity that represents customers. Execute transactions on its platform.

Both Kulechov and Warwick said their statements this week had nothing to do with the Abra case. Kulechov said he has been working on Aavenomics since the day after Aave launched on Jan. 8, and that he unveiled the proposal when the protocol was well funded. “We believe that teams should not control the future of what is essentially a public good,” he said.

Warwick added that his announcement, not Abra's, came after Australia started a new tax year. He posted on Tuesday that since 2018, he has been fighting for the dissolution of the foundation - creating a foundation was a "mistake"; Negative impact".

But then again, maybe their announcement came at the right time. Abra’s case makes it clear: Regulators are moving quickly to tackle crypto finance.

Preston Bryne, an encryption expert at the law firm Anderson Kill, said that he is not familiar with Synthetix or Aavenomics, but "you know without naming names, there are many obvious (regulatory) violations in DeFi, but regulators have not yet cracked down on them. .” And those who promote DeFi projects are “acting in a non-compliant way, which is actually making a very big gamble”.Projects that are not sufficiently decentralized can be quickly caught out. Kulechov has previously said that he is stepping up legal preparations: “We have to increase our own legal resources and make sure our protocol is fully decentralized.”But neither Warwick nor Kulechov should worry regulators. Warwick said his firm has been careful to avoid the missteps of previous crypto projects. "We've been very careful not to cross any clear lines drawn by regulators," he added. "In fact, no regulator has ever approached us with any questions or concerns about what we're doing."

Garcia added that the SEC will likely still treat DeFi the same way it treats ICOs. Kik, Telegram, Gladius, and Block.One have all been embroiled in lawsuits and lost money. “The SEC is likely (and has historically been) to target developers responsible for launching unregistered stock exchanges,” he noted.

Kulechov said his plan is to become sufficiently decentralized, that is, without a central point of accountability for regulators: “For example, Ethereum is considered sufficiently decentralized from a regulatory perspective (because ) it has no entity behind it."

The term "sufficiently decentralized" was coined by the SEC's William Hinman in 2018 about Ethereum and the Howey test

to speak

proposed in. He said that if a network is "sufficiently decentralized" in the sense that "purchasers can no longer reasonably expect a single person or group of people to undertake the necessary management or business endeavors," then "there may be no need for interest in securities based on that network." Functional tokens or cryptocurrencies are regulated.”