Regulatory Pressure May Force DeFi to Prioritize Decentralized Security

Curve Finance founder Michael Egorov believes that regulatory pressure from the Financial Action Task Force (FATF) could push decentralized finance (DeFi) protocols towards greater decentralization and stronger security. He made this statement following FATF's July 21 report on how its anti-money laundering and counter-terrorist financing standards should apply to DeFi.

FATF's report focused on whether a person or entity has 'control or sufficient influence' over a DeFi arrangement, rather than the protocol's label as decentralized or its use of automated smart contracts. Egorov pointed out that regulators should first establish what a protocol can technically do before determining who controls it.

He emphasized that user-fund control is a key consideration in regulatory assessments. According to Egorov, if governance cannot touch user funds, then why examine the decentralization of governance? He stated that smart-contract architecture determines what's actually possible in a protocol and should be considered the most objective measure.

Egorov also criticized the way AML rules are being applied to DeFi. While he believes regulatory pressure could have a different effect on how protocols are designed, making them safer, he doesn't think AML/CFT rules are currently efficient for DeFi or should be applied in their current form.