Announcing $1,000,000 airdrop for OBT holders. Read the full announcement
Research

Will Regulations Kill Decentralized Finance Or Save It?

Download Report

Did we give too much control to regulators or is this the final step for enormous mass adoption in crypto?

Thank you for signing up for our newsletter!
You have already signed up for our newsletter.
Research
One Button Capital
August 11, 2022
Aug 11

In recent years, decentralized finance (DeFi) has emerged as one of the most promising sectors in the cryptocurrency space. DeFi projects are built on decentralized protocols and offer a wide range of financial services, including lending, borrowing, and trading.

However, the DeFi sector is currently facing regulatory challenges. In particular, there is a risk that regulations could stifle innovation in the space and prevent DeFi projects from reaching their full potential.

There is a debate raging within the DeFi community about whether regulations will ultimately kill or save the sector. On one side, there are those who believe that regulations are necessary to protect investors and ensure the stability of the space. Regulators, on the other hand, are viewed as a hindrance to innovation and the full development of DeFi, according to some.

Crypto regulations around the world. Source: Comply Advantage

Fiat-Backed Stablecoins

Fiat-backed stablecoins have been gaining popularity in the decentralized finance (DeFi) space in recent months. However, the recent Terra LUNA crash has highlighted the risks associated with these types of tokens.

Government regulators have been quick to react to the crash, with South Korea’s Financial Services Commission banning the trading of Terra LUNA on exchanges. The US Securities and Exchange Commission has also launched an investigation into the matter.

These actions by government regulators could have a chilling effect on the DeFi space, as they may be seen as an attempt to clamp down on this nascent industry. However, it is also possible that these actions could help to protect investors and prevent future crashes. Only time will tell how this situation will play out.

Source: Coingate

Centralized Exchanges

In recent years, we have seen a trend of centralized exchanges becoming highly regulated. Coinbase and Binance are two examples of this. While this may be seen as a negative by some, it could actually be a positive for decentralized finance.

With more regulations in place, decentralized finance has a chance to flourish. These regulations could help to prevent scams and other illegal activities. They could also help to ensure that there is more transparency in the industry and better convenience for new users.

Mass Adoption

At present, regulations are easier to implement when the percentage of the population involved in crypto is still relatively low. However, as more people begin to adopt crypto, it will become increasingly difficult to regulate.

This is because cryptocurrencies are decentralized by nature, and there is no central authority that can be held accountable. Governments may be able to get more control over crypto in the future. While it is still too early to say definitively, it seems likely that regulations will have a positive impact on DeFi in the long run.

By providing more clarity and certainty, regulations will help to attract more users and businesses to the space. In addition, by making it more difficult for bad actors to operate, they will help to create a more stable and sustainable industry.

Bitcoin adoption rate vs Internet. Source: GMI.

Conclusion

Regulations are usually monitored as something negative within the cryptocurrency world but the recent events and billions of dollars in losses prove that regulations to some extent can have their benefits. Providing a more secure environment will be key to attracting more people to crypto.

At the same time, it is important to monitor what kind of regulations exactly are governments trying to issue, as the border between what is useful and what is excessive to decentralized finance is pretty thin.

The biggest drawback of too many regulations is that people may give out too much of the control of crypto to centralized institutions — destroying the whole purpose of DeFi. With the current growth of the industry that is unlikely to happen as the sector may explode at any given moment, similar to the Internet in the early 2000s.

Download Report

More Posts:

We regularly prepare insightful reports and case studies about crypto trading and the blockchain industry.

Sign up for our newsletter

Sign up for an account and get
access to the Transformer AI
Please, enter a correct email
Request Access
I'm an institutional client
image
You have successfully signed up for OB Trader!

We sent you a link to complete your sign-up.
Check your inbox, verify your email, and unlock all functionalities of your OB Trader account.

Join our communities!
You have requested access for OB Trader!

You have requested access for One Click Crypto!

You were added to our waitlist. You will get an email within 3-5 days If you are shortlisted.

Follow us
Oops! Something went wrong. Please, try again.
Oops! Something went wrong while submitting the form.
Back

One Click Crypto
institutional inquiry

Submit your inquiry through this form
Thank you! Your submission has been received and the team will get back to you within 1-3 business days.
Oops! Something went wrong while submitting the form.