See Lado Okhotnikov’s, Josh Adams’s and Chayanika Deka’s expert opinions at the end of article
DeFi platforms are a blockchain-based software product that provides developers with a set of tools to build decentralized applications (dApps). The system uses smart contracts to create an ecosystem of dApps and services based on the Ethereum virtual machine. DeFi platforms allow people to lend or borrow funds from others, speculate on asset price movements using derivatives, trade cryptocurrencies, insure deals against risks and earn interest on savings accounts. DeFi uses a layered architecture and easily composable building blocks. Some applications offer high interest rates, which is at high risk.
In simple words
DeFi platforms are websites or applications that allow financial transactions with cryptocurrencies for the purpose of making a profit. And the application scope of these instruments is not limited exclusively to financial methods known to all, such as loans, credits, stock exchange trading, collecting donations and others of the kind. The creativity of the creators allows you to connect the cryptocurrency and any kind of human activity. For example, production, transport, trade or construction. Everything works the same as in the world of ordinary money both in terms of profit and in terms of risks too.
Everything happens the same way as with regular money, only much faster. The first money appeared in the 7th century BC. The history of paper money began in the 7th century AD in China. Secured (change, representative) money – notes or certificates that can be freely exchanged at sight for a fixed amount of a certain product. For example, gold or silver.
The first American stock exchange emerged in 1791 in Philadelphia and in 1792 because of an agreement signed by 24 brokers from New York. This is how the famous New York Stock Exchange was born. The main stock markets in Europe at the beginning of the 19th century were the London and Frankfurt stock exchanges.
Fiat (symbolic, paper, fiat, decreed, “fake” and unsecured) money is our modern bank notes that do not have independent value. Fiat can perform the functions of money only because the state accepts it as payment of taxes and declares it a legal tender on its territory.
Therefore, bitcoin appeared on January 3, 2009. The first block and the first 50 bitcoins were generated. The first bitcoin transaction took place on January 12, 2009. In addition, almost immediately other digital currencies and tools such as exchanges have emerged which made it possible to transfer funds from one cryptocurrency to another and in fiat.
This speed is easily explained. The old money went its own way developing tools and rules that did not exist before. Cryptocurrency has simply adopted these rules of the game with the only difference – the emission of a cryptocurrency is limited by the algorithm for its blockchain building – a distributed registry of records of all transactions of this currency. This is the fundamental difference between cryptocurrency and fiat money. Moreover, the reason for the confrontation between bitcoin and the modern banking system.
Examples of DeFi-platforms
Kraken is an online bitcoin exchange that allows you to buy and sell bitcoins with fiat currency. The exchange offers margin trading which allows borrowing money from the market to buy or sell more bitcoins.
Nexo’s goal is to make it easier for consumers to get credit. Nexo charges no interest on loans, so borrowers only pay the fees associated with each loan: an application fee and a service fee to cover loan-processing costs.
Multiplatform with many tools for making profit both in active and passive mode. The active mode uses the traditional matrix (referral) scheme. A whole metaverse is being built with a variety of NFTs, games and other products. «This is a closed economy built on its own coin with an unusual tokenomics», -as Lado Okhotnikov – Meta-Force founder – said.
Defi Swap is a site where you can exchange your old or unwanted phone for the same or higher money value. This is a great way to get rid of your old smartphone and get some money in return.
The state objects
The US Securities and Exchange Commission plans to force the decentralized finance platforms to undergo mandatory registration. The SEC submitted the first version of the proposal back in 2022. The purpose of this initiative is called by the Commission as the elimination of “normative disparity.” Many trading platforms are not registered as exchanges or brokers. And the SEC wants to fill that gap through its Chairman Gary Gensler.
At the same time the SEC in the draft document does not offer the exact wording of DeFi. Gensler and his allies believe the technology behind the platforms is not very important. Many key industry players have already accused him of being biased, lacking clarity and overstepping reasonable bounds in an attempt to expand the regulator’s powers.
The SEC chairman emphasizes that many DeFi platforms already fall under the exchange’s current definition and are required to comply with securities laws. He also argues that participants in the cryptocurrency market are entitled to receive the same protections as those who invest in traditional financial instruments.
If the amendments proposed by Gensler are adopted, DeFi platforms will automatically fall under the responsibility of the SEC.
If you rise above the situation, it becomes obvious that state regulators are simply fighting for their survival and trying to demonstrate their need to society with the remnants of their power. It has long been clear to the SEC itself that platforms that base their work on the blockchain do not need external regulation. And when it becomes clear to the majority Gensler and the company will simply lose their jobs.
Just as generals prepare for the last war so the state agencies operate using the technologies of the last century. Exchange fraud occurs because the possibility of their implementation is inherent in the fiat system itself. Blockchain, on the other hand, obeys its own algorithm. That is why cryptocurrencies and tokens (cryptoshares) are much more protected from issuer fraud.
Crypto exchange Binance announced its intention to leave the United States. The SEC suspects Coinbase of violating securities laws. Crypto exchange Bittrex announced the termination of its activities in the United States.
- Platforms are leaving the US due to the inability to work and develop. This phenomenon has two effects:
- Exchanges will continue to operate but outside the country. They will become tax residents of another jurisdiction.
And the SEC will never achieve its goals: US clients will be able to continue to work with these exchanges. Nothing will change for them. They will not even notice because they work with the website.
The Securities and Exchange Commission, through its chairman Gary Gensler, is cracking down on crypto projects, claiming they violate securities laws and regulations. But not everyone in the US agrees with the SEC’s approach. In fact, some politicians and regulators oppose the excessive coverage of the SEC and call for a more balanced and fair treatment of cryptocurrencies. Rep. Davidson declares war on SEC boss Gary Gensler over a “long series of abuses.”
Warren Davidson is unhappy with Gensler’s actions and his attitude towards cryptocurrency. He decided that Gensler was abusing power and authority, violating the constitutional rights of free market participants and stifling innovation and competition in the crypto space. He also believes that Gensler is acting unilaterally and without proper oversight from Congress or other regulatory agencies.
That is why he decided to take matters into his own hands and pass a law that would have removed Gensler as a chairman of the SEC. He announced his intention on Twitter on April 15, 2024 in response to Coinbase head of legal department Paul Grewal who also expressed his dissatisfaction with Gensler’s overzealous efforts.
Rep. Davidson said, “To correct a long series of abuses I am introducing a law that would remove the chairman of the Securities and Exchange Commission and change its position to an executive director who is accountable to the Board which has real authorities.”
One small step for a man but a giant leap for all mankind
This is a bold and unprecedented move that could have major effects for the future regulation of cryptocurrencies in the US. However, the success of this step is unlikely. The state will defend itself, even if the truth is not on its side. Warren Davidson may face many obstacles along the way. And it remains to be seen whether the Rep.’s initiative succeeds or fails and what impact it will have on the SEC agenda, the fate of Gensler and the future of cryptonomics. Experts opinions:
Lado Okhotnikov, CEO of Meta-force.space, former CEO of Forsage.io*
“States have a monopoly on violence. If people were given a free choice then fiat would have no chance at all. Fiat money has no value. Of course, there is still a misunderstanding by the majority. But this misunderstanding is also related to the artificial hegemony of banks and rules that limit – but these are temporary limits. Of course, there are many complexities such as the well-known trilemma – decentralization, security and performance. But all these difficulties are essentially adaptation to new conditions. If you have been living an unhealthy lifestyle all your life and now you want to start eating right, exercising and so on at first the benefits of a balanced life will not be so obvious to you. It is the same with the integration of the mass application of cryptotechnologies”, -as Lado Okhotnikov counts at his blog.
*taken from here
Josh Adams, writer at BeInCrypto*
The SEC has experienced high attrition rates, reaching an estimated 6.4 percent in 2022, the highest in a decade. This is part of a larger trend across the federal government, which saw an average of 6.1 percent in the fiscal year 2021. As a result, the financial watchdog is relying more and more on temporary staff with little experience to fill the gap. These staffers often have little experience in rulemaking.
Chayanika Deka, Journalist at CryptoPotato News
The latest decision is far from the first salvo in the assault on DeFi. The sector is seeing relentless crackdown attempts, which industry advocates believe to be “extrajudicial” in nature. Last month, Sushi DAO and Head Chef Jared Grey were served with a subpoena by the SEC.
More recently, the US Treasury issued a first-of-its-kind illicit finance risk assessment report on DeFi.