From decentralization to centralization: DeFi protocols are these inevitable?
The concept of decentralization have long been a guiding principle in the crypto space, bitcoin the pioneer of digital currencies was introduced with decentralization as one of its core features, aiming to provide equal and free financial access to users around the globe. It was an alternative currency against centralized financial systems, and it gave birth to a new era of financial freedom which is been witnessed today across the globe although the movement of permissionless protocols are becoming a big problem to regulatory authorities till date as they give users full consensus over the use of their financial services without interference of any third parties this is what bitcoin blockchain was designed to provide for all.
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Building upon the principles of permissionless blockchain the world witnessed the emergence of Decentralized Finance (DeFi) platforms aimed to disrupt traditional financial institutions by offering decentralized alternatives. These platforms enabled users to buy, sell, trade, and invest in crypto based assets without the need for intermediaries like banks or centralized exchanges a key motivations behind these DeFi platforms was to provide financial services that bypassed the need for Know Your Customer (KYC) and Anti-Money Laundering (AML) checks that are commonly imposed by centralized exchanges. DeFi was the answer for those who sought financial privacy, autonomy, and security in 2021/22 the crypto space witnessed a hype in DeFi boom with billions traded volumes overall market exceeding over $250 billion at it peak, we have seen a quick decline in DeFi activities in 2023 as reports from coingecko shows DeFi total market capitalization trading above $7 billion with Uniswap an ethereum popular based decentralized exchange ranked top on the list with highest trading volume.
Policies creeping in
The crypto space will continue to see a shift and adjustment in regulatory policies from time to time these policies somewhat make the crypto space unwelcoming for new users back in 2022 American senator Elizabeth Warren proposed a bill which targets validators and non custodial wallets users to undergo a KYC verification this is to avoid money laundering follow FTX collapse, European regulators have also call for the need for DeFi to be regulated stating DeFi could cause unintended risk to financial stability.
All these policies and more which includes regulatory pressure from centralized officials claiming DeFi are fuelling money laundering are some of the reasons decentralized finance are deliberating on introducing a kyc pool proposal which will guide DeFi users to undergo compulsory KYC before participating in any trading pool.
Uniswap new Hook proposal for KYC
Uniswap a leading DeFi exchange with highest trading volume have lately been inviting users to participate in it beta waitlist applications which will be on both mobile devices have opened up a new community suggestion which will allow users to undergo Kyc verification before users can participate in trading pool the new proposal call hook allow developers to add features on the decentralized exchanges.
Jongwon Park a blockchain developer have submitted new proposal which will demand users to undergo a mandatory KYC on Uniswap because performing trades on the pool.
This new suggestion is open to selected users to vote if this new regulatory compliance KYC should be allow on the platform.
A lot of crypto investors already call this new idea a slippery slop on decentralization claiming this new proposal will create room for centralized entities to use them even where they are not needed.
The question now remains will this new circulating proposal will be implemented on decentralized exchange like Uniswap will decentralization on DeFi become inevitable?
Looking at how DeFi exchange are operated using smart contract being an open source code and with majority of DeFi users preferring their transactions to remain anonymous onchain it will be near impossible for this new feature to be implemented on DeFi platforms.
Will love to know what your thoughts are on this new hooks code proposal which could introduce DeFi platforms to impose kyc features in their platforms.
Well, with the way things are going with regulatory framework now, I guess the only decentralized platform is your hot wallet. Already a new wave of DEX and CEX marriage has long creeped in with some centralized exchange having DEX-like features like token swap, lending and LP staking while still improving and evolving the centralized features for example Bitget recently integrated the DEX swap features which gives users the opportunity to have access to potential projects very early with some even being incubated at that stage.
Yeah seems we are gradually shifting from what we normally call decentralized finance now there is a hybrid exchange thats been introduced lately that combine both exchange in one platform sounds a bit ridiculous.
I think these kind of exchanges are trying to maximize opportunities for users by expanding the market scope and investing in their ecosystem which is a good thing, if you ask me. The only thing that remain to be seen is how centralized or how decentralized these platform can become
I agree, its all about maximizing opportunities in the marketplace finger crossed lets see how things unfold with bull market in anticipation.
This bull market might be one of the memorable one in the history of crypto especially when you factor in the recent developments in terms of ETF approval, crypto adoption across different sectors of global economy and the upcoming BTC halving. I believe exchanges that have invested in their ecosystem capacity like what bitget and some others have done with integration of non-custodial wallet and expansion of their market scope to accommodate DEX users could be key to surviving the competition that is inbound or what do you say?
Sure have been a quick turn up in terms of development, good user experience service provided by most centralized exchanges for users to connect their dex wallets with EFT approval and bitcoin halving it will be massive we sure expecting the best.
Yeah, exactly. Expectations are high and we sure moving to the brighter side of the market now. The task ahead is to keep informing the less-informed and the mis-informed so we can encourage adoption and more financial inclusion/liberality.
Thanks mate
Sure mate lets keep spreading the good information to the world to increase adoption.