Why decentralized finance is needed to protect investors


In recent months, several countries have moved to incorporate cryptocurrencies into their national regulatory frameworks, citing the need to protect consumers from volatility and losses.

While some have touted this warm attitude towards digital assets as the catalyst needed to propel cryptocurrencies into the next bull market, concerns remain that tighter regulation could stifle innovation in the space. Remaining.

For now, the cryptocurrency market seems wary of this change, but it remains to be seen whether increased regulatory acceptance will have a positive impact on digital asset prices.

As the regulatory environment becomes more favorable and additional sources of liquidity are released, the value of some tokens may skyrocket.

However, while Bitcoin and Ether could benefit, these developments are unlikely to significantly boost the broader cryptocurrency market.

Look: What happened to the price of Bitcoin?

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breathtaking innovation

While this global regulatory shift brings much-needed clarity for financial institutions, it could be detrimental to the decentralized cryptocurrency community and its retail investors.

Across the world, the rules of the game seem to favor larger, established institutions, including large centralized exchanges.

On the other hand, decentralized exchanges and small innovative projects are strikingly absent in this developing state.

Proposed regulations often include stringent capital requirements and compliance with anti-money laundering rules, making it difficult for decentralized projects to obtain the necessary licenses.

In fact, regulators still seem to have trouble understanding the very concept of decentralization, creating confusion about which products and services fall under global law.

For example, the recently passed cryptocurrency market regulation in the EU has failed to provide a clear and consistent regulatory framework for decentralized finance (DeFi).

However, it is these small, innovative blockchain projects that drive growth, and their loss from view threatens the future of the entire cryptocurrency ecosystem.

Avoid a repeat of 2008

There seems to be an attempt to squeeze cryptocurrencies into the same box as banks and other traditional financial institutions. However, events in 2022 have revealed the fallacy of this approach.

Far from protecting consumers, centralization creates fertile ground for alleged fraudsters such as FTX’s Sam Bankman-Fried and Celsius Network’s Alex Mashinsky to carry out their nefarious activities. just produce.

In this setup retail investors always lose money. In the best-case scenario, they invest their hard-earned money in so-called “reliable” financial institutions and pay exorbitant management fees. Worst case scenario, you’ll lose all your savings to a Ponzi scheme.

This happened in 2008, when millions lost their savings as a result of the reckless behavior of banks and investment managers.

The same thing happened last year with cryptocurrencies. And the same will continue to happen unless we make drastic changes to the system. How can it not? Doing the same thing over and over and expecting different results is the very definition of insanity.

Need for more decentralization

There is also another method. Global legislators could encourage adoption of DeFi rather than simply perpetuate the interests of centralized corporations.

DeFi has a very promising infrastructure that allows full automation, increased efficiency and reduced fees for users.

Adopting DeFi by regulators could usher in an era of open financial services, without the exorbitant fees and cult of personality that plagues today’s financial landscape.

Cryptocurrencies – in pictures

By removing the very notion of monopoly, it will create a more diverse playing field and provide consumers with real choice. And most importantly, it gives individual investors control over their financial future.

The world seems to be losing track of why cryptocurrencies were created in the first place.

Bitcoin was designed to fight the greed and corruption that caused the 2008 crash. Cryptocurrencies are a fair alternative to fiat currencies and need to return to their decentralized roots to truly break the cycle of market booms and busts.

Stephan Lust is Chief Executive Officer and former CEO of Truflation, an independent inflation data aggregator. Bitcoin.com

Updated: June 7, 2023, 4:00 AM

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