Approaching the DeFi regulation problem by imposing KYC-AML requirements on DeFi protocols is definitely viable but also quite constraining and potentially harmful to the DeFi space. The decentralized, transparent and programmable nature of DeFi provides a foundation for new types of regulatory frameworks. As a general principle, DeFi introduces groundbreaking innovations in the structure of financial primitives, so why shouldn’t we think about regulatory models that leverage those native innovations? Even though some of these ideas might result insufficient from a regulatory coverage standpoint, their underlying principles might help to provide a better bridge between DeFi and current regulatory frameworks.
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