Vitalik Buterin, the co-founder of the Ethereum blockchain (ETH), took to Twitter to express his views on the regulation of the cryptocurrency and decentralised finance (DeFi) ecosystem. According to him, the various regulations should not conflict with the intrinsic goals of crypto-currencies.
Vitalik Buterin gives his views on the adoption of cryptocurrencies
After a week punctuated by tweets from FTX CEO Sam Bankman-Fried, who received a lot of criticism for his approach to potential regulation of decentralised finance (DeFi), it’s Vitalik Buterin’s turn to join the discussion.
The co-founder of the Ethereum blockchain (ETH) was keen to point out the institutional adoption of crypto-currencies and the financial influence that institutions can have on “the way crypto-currencies work intrinsically”.
Another maybe-controversial take of mine is that I don’t think we should be enthusiastically pursuing large institutional capital at full speed. I’m actually kinda happy a lot of the ETFs are getting delayed. The ecosystem needs time to mature before we get even more attention.
– vitalik.eth (@VitalikButerin) October 30, 2022
Exchange Traded Funds (ETFs) are exchange-traded funds that track another stock index to match their profitability.
Further on, he adds:
“Regulation that leaves the crypto space free to operate internally, but makes it harder for crypto projects to reach the general public is much less bad than regulation that interferes with the internal workings of the crypto. “
In other words, regulation of cryptocurrencies should not undermine the intrinsic purpose of cryptocurrencies, namely their resistance to censorship and decentralisation, even if it makes it harder for individuals to adopt them.
The age-old problem of regulation
Vitalik Buterin says it seems natural that centralized exchanges (CEX) require their users to complete the identity verification process (KYC) before they can perform certain transactions. However, in his view, this is of no interest to decentralised finance as hackers will not be impacted by the possible implementation of this rule:
“We have to be careful not to get caught in the middle.
“The idea of “KYC on DeFi frontends” doesn’t seem to me to be very useful: it would annoy users but do nothing against hackers. Hackers already write custom code to interact with contracts. Exchanges are clearly a much better place to do KYC, and it’s already being done. “
He did however offer a few ideas that he thinks could improve decentralised finance:
- Limit leverage;
- Require more transparency on audits and security checks on smart contracts;
- Base the use of DeFi on knowledge tests and not on “plutocratic net wealth minimum rules”.
In short, rules that would effectively help protect the user without ever coercing him. Finally, he adds that regulation should be compatible with zero-knowledge proof (ZKP), as this method “offers many opportunities to satisfy regulatory policy objectives and privacy at the same time”.
Vitalik’s tweet was noticed by Sam Bankman-Fried, who simply replied: “Overall, that sounds pretty reasonable!”