Author name: @nobumei (https://twitter.com/nobu_mei)
DeFi is a new financial protocol created by building on the ideas and history of past developers. The intellectual curiosity of the developers could not be stopped, so they wrote code with a pure heart, and DeFi was built with the feeling of building a new toy.
The end result is expected to be a decentralised financial system in the spirit of cypherpunk, but to the outside world it will look like the developers have created a new toy.
It would be better if it remained a toy, but the amount of money DeFi is currently moving has become too large. The larger the amount, the greater the damage in the event of hacking or fraud, and the greater the risk of stolen funds being used for money laundering, so there is a strong argument for regulation of DeFi.
In fact, although they are called 'De' Fi, not many of them are fully decentralised.
For example, a stablecoin called USDC (see next chapter), which is pegged to the US dollar and is used by DeFi, allows issuers to freeze the affected USDC in the event of an incident.
In August 2022, the US Treasury Department's Office of Foreign Assets Control (OFAC) banned Tornado Cash, a protocol that anonymises deposits and withdrawals and protects privacy, from use in the US due to high money laundering risks, and arrested its developers.
The USDC issuer immediately froze its assets in this case. The arrest of the developer, rather than the money launderer, is reminiscent of the Winny case in Japan.
In DeFi, where there is supposed to be no administrator, a system where issuers can intervene goes against the ideology, but it is unlikely that DeFi, with its inherent money laundering risks, will be connected to the existing financial system, which will stop the growth of DeFi.
If the goal is to grow the DeFi developed, then the regulations should be followed, but to do so would result in a loss of decentralised autonomy and a bending of ideology. The OFAC sanction made the developer choose whether to focus on ideology or growth.
As this column is being written, news of crypto asset exchange FTX siphoning off customer assets is breaking, and regulation is expected to tighten in areas other than DeFi.
We don't know what the future of DeFi will look like; will the day ever come when we are exposed to a DeFi-native financial system? We look forward to the day when DeFi becomes commonplace and just 'Fi (finance)'.
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