Just as DeFi tokens began to plunge in value, voices for rights protection gradually increased. While DeFi destroys the traditional blockchain system, it also brings new challenges to rights protection. Who should you turn to for rights protection after losing money in DeFi investment? On what basis can you defend your rights? To date, no major regulator has issued specific guidance or regulations on DeFi, and reports indicate that regulators do not yet understand DeFi well enough. DeFi is still a wild and unregulated area with no rules and no supervision. Someone once made a judgment: the only purpose of most DeFi projects is regulatory arbitrage . When will the sword of Damocles over DeFi fall? And where will it fall? Start defending your rights "There are more and more DeFi projects that are neither audited nor regulated," said Liu Qi. Since last weekend, just like the weather in Beijing, the temperature of DeFi has dropped sharply. "Several project groups that were previously very active have become rights protection groups," said Liu Qi. The good days are over, and the DeFi world is in a bleak state. "Few retail investors are making money, and the 28th law is still there." The bear market that started in the second half of 2018 may still be fresh in everyone’s memory: the price of coins plummeted, the community went into hibernation, and investors had nowhere to turn to. The big guys were silent, they lamented, quarreled, and quit. Today, the DeFi world seems to be repeating the "grand occasion" of the cryptocurrency world in 2018. According to statistics from Planet Daily, the cumulative decline of most DeFi tokens in September was around 50%. Veteran DeFi tokens such as LINK and MKR fell by around 30%, while the new generation of DeFi tokens that focus on liquidity mining models, such as SAL, KIMCHI, and SUSHI, generally fell by more than 70%. In addition to the sharp drop, fraud projects taking advantage of the DeFi popularity have emerged one after another. Emeraldmine, a DeFi product once ranked first on EOS, ran away on September 9. The founder emptied the capital pool, transferred tokens worth $2.5 million, and sold them through DeFiBox. Other projects such as bread, tuna, and roses also experienced sharp declines and runaway incidents. Such fraud incidents are endless. When investors are cheated or suffer losses, who should they turn to for redress? If it is in the classical currency circle, rights defenders may find project owners, token funds, investment agencies or even digital currency exchanges, who are active in the field of vision and are regarded as public "sickles". But in the DeFi world, the above institutions may no longer exist. Anonymous project parties may have only submitted codes and not participated in subsequent operations. Token Funds and investment agents no longer exist, and exchanges can seemingly shirk their responsibilities by collectively FOMO-listing coins. A decentralized world naturally requires decentralized rights protection - to a certain extent, there is no right to protect. On September 10, Gate.io was suspected of increasing the total issuance of Kimichi tokens, causing the token price to plummet. Finally, investors called the police to protect their rights. However, due to the secrecy of the case and the limitations of current laws, the police were unable to file a case of fraud after patiently understanding the situation. This may reflect a certain disconnect between the development of DeFi and regulation. Apart from the scams that deliberately run away and tamper with parameters, who makes most of the money? It may be the farmers who "dig Maiti". These farmers have already cashed out the mainstream coins, similar to the wool party, and do not pay actual responsibility for the token price. The rules of the game were written at the beginning. On the other hand, most rights defenders are actually retail investors who took over in the secondary market, because they are destined to pay for the risks when they took over. If the normal trend continues, regulation may not come until it reaches a sufficient scale, just like ICOs before September 4, 2017, when they will be banned. But the first group of rights defenders in the DeFI world have knocked on the door to the real world. With their calls for help, will the regulation of DeFi come earlier than expected? How to regulate DeFi has always been endowed with the beautiful vision of inclusive finance. "The capitalist system has been benefiting workers by increasing their income and improving their credit, with money trickling down to benefit them, but this process is no longer working, which has caused the failure of the capitalist system mechanism," said Ray Dalio, founder of Bridgewater Associates. DeFi just makes up for the shortcomings of "system mechanism failure" in traditional finance. There is no need for review and account opening, not even KYC, and everyone can enjoy DeFi services. However, as mentioned above, DeFi has become a speculation platform for "regulatory arbitrage" due to the lack of supervision. So how should DeFi be regulated? Perhaps DeFi can be compared to the development of the Internet. In the early days of the Internet, some legal scholars believed that code rules would eventually rule the Internet. However, as time went on, governments began to use code rule to maintain the rule of law on the Internet and gradually expand the scope of control. When analyzing how to regulate the Internet, American scholar Lawrence Lessig expounded on the "pathetic point theory", which describes how individual behavior can be controlled or influenced through four different mechanisms: state legislation, social norms, market forces derived from the laws of supply and demand, and the architecture that shapes the physical and digital world. Do Lessig’s four regulatory models also apply to blockchain systems? "Regulating Blockchain: Governance by Code" states: Even the most autonomous systems are subject to specific forces and constraints because blockchain systems must rely on new intermediary systems that provide support for the underlying blockchain networks, and these systems are easily regulated. “These systems must rely on code (or architecture), and how they operate is ultimately determined by market forces and subject to social norms. Laws can regulate blockchain technology by influencing these three forces.” Laws, markets, architectures and social norms are like the four pillars of blockchain regulation. Take social norms as an example. In 2016, after The DAO was attacked, the Ethereum community spent a month considering proposals on whether and how to remedy the losses. In the end, they decided to fork Ethereum instead of resorting to external regulation. The DAO incident demonstrated the key role of social norms in the regulation of blockchain systems. Regulation and innovation "The genie is out of the bottle ." Timothy May, one of the founders of Cypherpunks, said in an article that no one and no force can stop the spread of anarchism caused by the development of encryption technology. DeFi protocols are designed to be permissionless from the beginning. In theory, anyone in any country or region can access DeFi protocols without regulatory and compliance barriers. In the DeFi community, many people are opposed to accepting any supervision and laws. They believe in anarchism and want to create their own utopia on DeFi. Is anarchism a good thing? Lawrence Lessig once warned: "When government disappears, it is not necessarily replaced by heaven; instead, other interest groups take its place." The DeFi world is like a Shura field at the moment. Under the "no man's land" situation, DeFi has become a wool machine for "regulatory arbitrage". Some people have made a judgment: the only purpose of most DeFi projects is regulatory arbitrage. In the real world, Compound and Aave might need a banking license, while Nexus Mutual might need an insurance license, and yearn.finance might be considered an illegally operating investment fund. Pan Chao, head of MakerDAO China, recently said on a social media platform that Yield Farming has entered its third chapter, from offshore US dollars to unregulated securities, and now to high-leverage derivatives. "Calling unregulated CDS insurance is a big problem." A large part of the reason why traditional regulation exists is to protect ordinary people and ensure that they are not exploited in financial activities. Interestingly, blockchain technology in many ways restores the financial system to its historical starting point - Wall Street was also informal and decentralized at the beginning. Over time, Wall Street gradually became centralized in response to the financial crisis. Lack of regulation has also prevented DeFi from growing. Due to the lack of a proper regulatory framework, entrepreneurs and startups are afraid of stepping into a forbidden zone and are hesitant to move forward. Shen Bo, partner of Distributed Capital, said in a meeting that there are many incompatibilities between the current regulatory system and developmental finance. Financial regulatory mechanisms and open finance need to be coordinated with each other to allow the latter to grow smoothly. Otherwise, it will always develop in a gray area. Obviously, the rise of DeFi has been noticed by regulators. As Hester Peirce, a member of the US SEC and "Crypto Mom", said in an interview at the beginning of this month, although DeFi is still in its early stages, the SEC has begun to pay attention to it, "I think this will challenge our regulatory approach." The problem that has always existed in financial innovation is: what kind of appropriate regulation should the financial industry be subject to without harming its role in promoting social progress? Perhaps, DeFi will eventually stumble forward amid the shakes of innovation and regulation. "Regulating Blockchain: Rule by Code", Primavera De Filippi, Aaron Wright Link to this article: https://www.8btc.com/media/648448
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