DeFi protocols are centralized enough for regulation


DeFi’s Regulatory Risk: Should YOU Worry?? 😰

DeFi protocols are centralized enough for regulation

DeFi protocols are centralized enough for regulation

  • DeFi Protocols Are Not That Decentralized Despite Their Name

  • Project developers are able to counteract criminal activity, according to Chainalysis

  • A very small fraction of the total volume in the DeFi market is used for illegal activities

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DeFi Market ProtocolsDecentralized Finance (DeFi) is financial services built on blockchain technology that offer users access to an open, efficient and … More centralized enough to control the transaction activity of its users

DeFi protocols are centralized enough for regulation

Decentralized Finance (DeFi) protocols are in fact centralized enough to regulate the activity of their users. At least that’s what the analytical company Chainalysis thinks..

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Developers behind the protocols can block risky transactions and thwart illegal activity, according to a new report. Then many projects of the DeFi market could comply with the Bank Secrecy Law, according to the analytical blockchain company..

Relative decentralization

Chainalysis estimates that DeFi protocols are less prone to illegal activity than the entire cryptocurrency ecosystem as a whole. In 2020, only 1.1% of the total volume of transactions with cryptocurrencies was received or sent to an address associated with illegal activities, notes Chainalysis.

DeFi protocols are centralized enough for regulation


The total size and proportion of crypto funds sent from black addresses to DeFi platforms. Source: chainalysis.com

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DeFi’s involvement in the criminal market is even less. In 2020, only 0.05% of all funds received by decentralized platforms came from “black addresses” and only 0.07% of all funds were sent via DeFi protocols to the same addresses.

Contrary to ideology

Even with such small amounts of criminal funds, cryptocurrency analyst Ryan Selkis believes that most DeFi protocols are already voluntarily regulated. A striking example of such regulation was the blocking of some of the funds stolen from the KuCoin exchange in September this year, when attackers tried to launder cryptocurrency using the Uniswap and Kyber Network services..

Although the developers thwarted the KuCoin hackers, the attackers were still able to purchase 875 BTC on centralized exchanges using stolen altcoins..

The issue of compliance of the DeFi industry with the laws “On bank secrecy” has become especially acute after the scandal with the BitMEX cryptocurrency exchange. Recall that in early October, the Commodity Futures Trading Commission (CFTC) accused BitMEX management of running an unregistered trading platform and failing to provide the necessary measures to counter money laundering. Almost immediately, amid the CFTC allegations, many DeFi tokens began to fall in value. The sensational token became the record holder for the collapse.As the use of cryptocurrencies grows, new types of tokens appear. They can represent value or something intangible like voices. Two … More YFI, which lost up to 30% of the cost.

DeFi protocols are centralized enough for regulation

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