Regulation has always been the sword of Damocles hanging over the crypto industry. Now with the continuous growth of TVL (Total Locked Value), supervision has focused on the DeFi sector. Just two months ago, Uniswap Labs announced that it restricted the app.uniswap.org front-end’s access to 129 tokens, most of which fall into the category of tokenized stocks, options, and derivatives. In this regard, the reason given by Uniswap Labs is the "changing regulatory situation." This is a testament to increasingly stringent regulations.
DeFi aims to create an open-source, permissionless and censorship-resistant financial market. The growth of DeFi volume has also affected the traditional financial market to a certain extent. Therefore, Gary Gensler, chairman of the US Securities and Exchange Commission (SEC), has repeatedly instructed the SEC to crack down on cryptocurrencies and the growing stablecoin market.
DeFi and regulation
Due to the open source, transparent, decentralized and secure nature of DeFi, the imagination of encrypted assets shaped by code is more abundant. Therefore, in addition to the cryptocurrency market, the DeFi derivatives market is also being continuously explored by developers.
However, with the expansion of the derivatives market and the launch of some products, traditional finance has felt threatened from the DeFi world. Tokenized stocks, options and financial derivatives have been tugging at regulatory sensitive nerves.
In addition to numerous financial derivatives and synthetic asset protocols on Ethereum, with the development of multiple chains, more financial derivatives and synthetic asset protocols have been deployed on public chains with low Gas fees and high scalability. Even CEX has begun to launch corresponding tokenized stocks, supporting 7*24 hours trading.
The current scope of services of Mirror Finance on the Terra public chain has covered all stocks in the U.S. stock market, and it is in a leading position in the field of synthetic U.S. stock trading. Although we cannot get dividends from synthetic US stocks, we can enjoy the dividends brought by DeFi - access to high-quality assets that require KYC without geographical restrictions.
There are also many financial derivatives agreements on Solana. Digital Assets AG (DAAG), a financial instrument tokenization company from Switzerland, also launched tokenized stocks on it, but this product is currently only available to FTX users.
Therefore, the US Securities and Exchange Commission (SEC) has begun to regulate the corresponding DeFi platforms. However, since the DeFi platform is decentralized, does not involve cash transactions, and has little control over user assets, it is difficult for the US Securities and Exchange Commission (SEC) to supervise the DeFi protocol. In Gary Gensler's view, "there's still a core group of people" involved in writing the software and managing each platform. Therefore, the US Securities and Exchange Commission (SEC) is targeting DeFi developers.
According to Wall Street sources , the Uniswap development team Uniswap Labs has been investigated by the US Securities and Exchange Commission (SEC). A spokesperson for Uniswap Labs said that Uniswap has provided information to regulators to assist in the investigation.
In addition to concerns about financial derivatives and synthetic assets, regulation has also taken a keen interest in the expanding stablecoin market. Some information suggests that the U.S. Securities and Exchange Commission (SEC) may be investigating Tether and Tether Operation Limited. “We have a lot of casinos in the Wild West, and poker chips are these stablecoins on the casino tables.” Gary Gensler believes .
Not only regulators, as a stablecoin Tether USD widely used in the encryption world, many people have doubts about the form of reserves behind it.
Earlier this year , Tether disclosed the details of USDT's reserves, of which only 2.6% are in the form of cash as reserves, and the rest are a combination of secured loans, corporate bonds, encrypted assets, and other investment tools. According to an audit by Moore Cayman, an accounting firm specializing in auditing services for investment funds and the digital asset industry, as of June 30, all tokens issued by Tether were backed by sufficient reserves.
In addition, illegal cryptocurrency money laundering activities are also related to DeFi. This area has also been the focus of regulators for a long time.
If regulation bans the front end of the DeFi protocol
Let's go back to the beginning of the situation - Uniswap Labs restricted some of the functions of app.uniswap.org. If regulation limits the front end of a DeFi protocol, can we still use the corresponding application?
The answer is yes.
As Uniswap founder Hayden Adams said in his response to this matter , Uniswap Protocol is a completely decentralized permission-free smart contract on Ethereum, and app.uniswap.org is an IPFS hosted domain name owned by Uniswap Labs pointing to the Uniswap interface . Uniswap Labs has the right to set some permissions on its website, but this does not mean that Uniswap is not decentralized.
In fact, we can still access the Uniswap protocol through decentralized means (uniswap.eth.link), not app.uniswap.org managed by Uniswap Labs. uniswap.eth.link is composed of decentralized domain name ENS, decentralized storage IPFS and centralized access port (eth.link or cloudflare) , through which we can access Uniswap decentralized front-end in all browsers. If app.uniswap.org is restricted due to regulation, we can use Uniswap through uniswap.eth.link.
In the current DeFi ecosystem, most DeFi protocols are still using a centralized front end since we mostly use the traditional Internet for surfing in our daily lives. Although this lowers the threshold of DeFi to a certain extent and improves the user experience, it also opens the exposure to the regulation of DeFi.
However, there are also many protocols that explore fully decentralized access methods to varying degrees. Liquity hopes that by building a startup kit, anyone can start their own front-end, just download the kit, fill in some parameters, and host the interface. The DEX protocol Burgerswap on BSC has launched an IPFS decentralized front end : ipfs.burgerswap.org. Burgerswap's IPFS decentralized front end uses the previously mentioned cloudflare interface.
Front-end decentralization
We might as well divide the process of front-end decentralization into three parts: browser, decentralized domain name, decentralized storage, and computing.
Most browsers can complete access to decentralized domain names. It is worth noting that since web browsers do not yet support decentralized domain names, access to decentralized domain names requires centralized access bridges. But what is exciting is that many browsers have begun to support decentralized storage IPFS and computing, including Chromium, Firefox, Opera, Brave and other mainstream browsers, all of which support encrypted wallet plug-ins, and some platform versions of Opera and Brave already support The native access capability of IPFS and ENS domain names is provided.
In addition, we can also access the corresponding Dapp through the wallet application.
When we talk about decentralized domain names, we mostly talk about ENS domain names. We can understand the ENS domain name as a simplified version of the Ethereum wallet address, which can be easily remembered, and corresponds to the DNS domain name. Before, the traditional Internet also completed information simplification through DNS domain names-now whenever we want to visit Google, we only need to enter google.com. ENS domain names often end in .eth.
In addition to Ethereum's ENS, the Bonfida protocol of the emerging public chain Solana has also launched a decentralized domain name service . Bonfida domain names end in .sol. Bonfida supports the linking of domain names and on-chain data, and websites hosted in IPFS or Arweave can be fully decentralized by using Solana domain names.
Through the combination of the above, we can access decentralized DeFi applications in a completely decentralized manner without the influence of regulators.
In addition, Skynet, a decentralized CDN and file sharing platform, also announced the launch of a new decentralized front-end application, Homescreen. Homescreen allows users to install web applications in a very simple way, and at the same time adds users to Homescreen. All code and assets of the program are downloaded and stored in the user's decentralized repository. When a user opens an application, the application will be loaded from the user's repository, which enables the user to have an end-to-end decentralized experience.
But it is worth noting that we are sacrificing part of the user experience while pursuing decentralization-this runs counter to the ultimate vision of Web3. In the future, there will definitely be a more complete and faster decentralized front-end solution - that will be our only way to Web3.
However, we don't know what kind of form the supervision will develop at that time, and what kind of tactics will be used. Perhaps, complete open source, anonymity and autonomy will become the final form of DeFi.
References:
Decentralized finance has become a regulatory center, how to decentralize the front end of DeFi?
https://www.chainnews.com/articles/067784546025.htm
A Name Resolver for the Distributed Web
https://blog.cloudflare.com/cloudflare-distributed-web-resolver/
Uniswap Interface + IPFS
https://uniswap.org/blog/ipfs-uniswap-interface/
Chromium, Opera, Firefox and other mainstream browsers support IPFS: the general trend of distributed storage technology!
https://zhuanlan.zhihu.com/p/345206716
Kikyo
Alex
Hui Xin