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Just weeks after FTX CEO Sam Bankman-Fried (SBF) called for DeFi regulation, Ethereum founder Vitalik Buterin has reasoned why there should be more “helpful” regulation in the crypto space.
In a thread on Twitter, Buterin offered his views on crypto regulation in response to feeling it was “unfair to let other people get attacked by [crypto Twitter] but never actually poking [his] head out.”
Buterin pointed to three regulatory ideas when it comes to regulating DeFi frontends. The first is a limit on leverage. Secondly, Buterin called for requiring transparency surrounding audits and security checks on contract codes. Finally, he suggested introducing “usage gated by knowledge-based tests instead of plutocratic net-worth minimum rules.”
Read more: More Curbs Coming for Crypto Investors
Using zero-knowledge proofs (ZKPs) to satisfy these requirements was also suggested by Buterin. “ZKPs offer lots of new opportunities to satisfy reg policy goals and preserve privacy at the same time, and we should take advantage of this!” he said.
Buterin’s thread also came with a warning to avoid preaching for the community to “make sacrifices for the sake of peace but suggest only sacrifices where other people are the ones sacrificing while you give up nothing.”
I generally don’t like subtweeting; it’s impolite to people who do not have context. When I tweet a generality instead of just talking about a particular situation directly, I typically have at least two examples in mind.
— vitalik.eth (@VitalikButerin) October 29, 2022
(And yes, this applies self-referentially)
SBF
Earlier this month SBF published a document in which he called for regulating DeFi. “If you host a website aimed at facilitating and encouraging U.S. retail to connect to and trade on a DEX, this may end up falling under something like a broker-dealer/FCM/etc,” Bankman-Fried said.
“Figuring out how and where DeFi and things tangentially related to DeFi do and don’t fit into regulatory contexts is a hard problem, and one on which there is not yet firmly settled thought.”
Critics slammed SBF for his outlook stating that there “should *never* be the case that there is a mandate to access DeFi through a centralized intermediary’s interface.”
Adam Cochran of Synthetix and Yearn Finance also tweeted, “even the revised version still reads at how can there be a moat that lets centralized entities control at least part of the flow into DeFi, so they can profit from it.”
Yeah even the revised version still reads at how can there be a moat that lets centralized entities control at least part of the flow into DeFi, so they can profit from it. https://t.co/PKHSfb57tj
— Adam Cochran (adamscochran.eth) (@adamscochran) October 23, 2022
SBF x Vitalik
Whilst SBF suffered backlash for his views on regulation, Buterin received a relatively warm reception for his insights. One Twitter user even responded, “it’s people like @VitalikButerin that should be in the room with @SBF_FTX . Both views are needed from a CEX and DEX perspective.”
SBF supported the idea of talking with the Ethereum founder, stating, “actually would love to do that — I think that policymakers/regulators would find it pretty interesting to hear from @VitalikButerin he’s *very* different from the average person in DC, but in a kinda refreshing way–calmly and thoughtfully saying what he thinks.”
actually would love to do that — I think that policymakers/regulators would find it pretty interesting to hear from @VitalikButerin
— SBF (@SBF_FTX) October 30, 2022
he’s *very* different from the average person in DC, but in a kinda refreshing way–calmly and thoughtfully saying what he thinks
Blockhead x regulation
With crypto winter exposing the dangers of crypto and deregulated finance, the industry understandably is more willing to flirt with the idea of some sort of regulation. The Monetary Authority of Singapore (MAS) is particularly tighetning its grip on the industry.
In August, MAS chairman Ravi Menon said that the regulator is contemplating “adding friction” on retail access to cryptocurrencies as retail investors remain “irrationally oblivious” of the speculative nature of crypto.
Read more: Too Little or Too Much? MAS Proposal Casts Uncertainty on Retail Scene
According to a consultation paper published on 26 October, the proposed measures include testing a customer’s understanding of the possible risks of crypto trading, and preventing DPT (digital payment token) providers or crypto exchanges from allowing retail investors to borrow money or using a credit card to purchase crypto.
Regulatory bodies are walking a fine line between protecting investors and intruding on the crypto space. Ethereum, which recently underwent its highly anticipated “merge,” is now under the thumb of the SEC, according to America.
“ETH contributions were validated by a network of nodes on the Ethereum blockchain, which are clustered more densely in the United States than in any other country. As a result, those transactions took place in the United States,” the SEC recently said.
Read more: Thanks America, Ethereum is No Longer a Global Blockchain
Whether Buterin is consciously pushing for regulation in light of Amercia’s watchful eye is difficult to determine, but if the Ethereum founder is showing his support for regulation, it would suggest a more restricted crypto space could be on the cards. Nonetheless, Buterin’s call for more “helpful” regulation is perhaps the most sensible approach that respects the desires of the space whilst keeping them safe.
