Is 'DeFi Regulation' an Oxymoron?

PLUS: CME tops BTC futures, Kazakhstan moves to limit mining and more |

The biggest crypto news and ideas of the day  Oct. 22, 2021 If you were forwarded this newsletter and would like to receive it, sign up here. Sponsored by     Welcome to The Node.   Questions? Feedback? We'd love to hear from you! Simply reply to this email.   –Daniel Kuhn Today's must-reads Top Shelf TOP DOG: The Chicago Mercantile Exchange (CME) has replaced Binance as the world's biggest bitcoin futures platform, thanks to the strong investor appetite for the recently launched ProShares Bitcoin Strategy ETF. As of writing, the CME accounts for 22%, or $5.68 billion, of the total global futures open interest of $25.7 billion, while Binance is contributing $5.66 billion to the worldwide tally. Meanwhile, Valkyrie Investments' bitcoin futures exchange-traded fund (ETF) started trading early Friday on Nasdaq.  NEW RULES? Banks in Spain are getting ready to offer crypto services to their clients but are being frustrated by the lack of clarity from their central bank. The Bank of Spain said in June it would provide instructions by Oct. 29 for entities wishing to register to provide crypto services, but banks are still waiting. Elsewhere, the Securities and Exchange Board of India (SEBI), the country's top securities regulator, issued a notice to advisers on Thursday warning them not to deal in assets that are not regulated in the country. And the Financial Action Task Force (FATF) will soon publish its revised anti-money laundering guidance for cryptocurrency firms, President Marcus Pleyer said Thursday. MINING MORE, MINING LESS: Bitcoin mining company Greenidge Generation is looking to build new facilities in Texas and buy an established site in South Carolina. Separately, Kazakhstan's Ministry of Energy plans to limit the electricity consumption of the nation's crypto-mining industry to a total of 100 megawatts as it looks to curb power shortages. A message from Nexo When it comes to buying, borrowing or earning on your crypto, you won't find an easier, safer way to do it than Nexo.   And right now, with its Referral Program you can earn $10 worth of bitcoin for each friend you refer. And the best part – your referral gets $10 in BTC, too.   You can invite up to 100 friends – so you can get as much as $1,000 in bitcoin by copy-pasting a few links. And you can further bump that amount by earning up to 8% interest p.a. on your bitcoin, paid out daily.   Now is the time to unlock the full power of your crypto.   Join Nexo and start earning free BTC with your friends. What will 2022 bring? Crypto 2022 is CoinDesk's ambitious effort to scope out what's next. This week it's Policy Week, a week devoted to exploring the complex ways governments are interacting with the cryptocurrency ecosystem, and how policy decisions or lack thereof will affect the year ahead. Read more here. What others are writing... Off-Chain Signals Robinhood crypto wallet waitlist tops 1 million customers, CEO says (CNBC) PayPal logs its largest bitcoin volume since May BTC price crash (Cointelegraph) F**k Worldcoin, crypto's Theranos fever dream cooked up in Silicon Valley (Protos) Binance.US blames bitcoin flash crash to $8,200 on a bug in a client's trading algorithm (The Block) Germany's World Wildlife Fund to sell NFTs to raise money for endangered species (The Block) Meet the Visual Artist Using Algorithms to Make Multi-Million Dollar NFTs (Decrypt) A message from ADALend ADALend — decentralized native Cardano protocol governed by DAO   ADALend protocol based on Cardano will power flexible finance markets by providing for larger instant loan approval, automated collateral, trustless custody, and liquidity.   ADALend seed round was 400% oversubscribed, those who did not make it into the seed stage have been whitelisted for the private sale. Join ADALend private sale Putting the news in perspective The Takeaway Is 'DeFi Regulation' an Oxymoron? We're nearing the end of "Policy Week" here at CoinDesk, which I've spent focused on the particularly thorny issues of regulating decentralized finance (DeFi). The technology, which removes intermediaries like banks and exchanges from asset trading, may require a major rethink of how securities regulation works. In the short term, though, there will likely be serious crackdowns that test the reality of that decentralization.   There has been a recurring theme in the reactions to these pieces: that "DeFi" subjected to any sort of limits or controls whatsoever isn't really "DeFi." On one level, that's true enough: As crypto-lawyer extraordinaire Stephen Palley laid out when discussing enforcement, the sort of kill switches or other controls necessary for regulation to work are usually controlled by a small group of insiders. It's an open question whether entirely open and anonymous DeFi systems will be able to survive once enforcement really gets rolling.   But on another level, knee-jerk declarations that only anonymous systems qualify as "DeFi" are narrow-minded. There are unique features to the technology, such as self-custody and shared liquidity pools, that don't depend on anonymity and that could offer real benefits to the way we run mainstream asset markets.   It seems entirely fair to debate whether "DeFi" is still the right term for permissioned trading protocols, but we should also be careful not to throw the baby out with the bathwater. That's particularly true because DeFi could lead to innovations in know-your-customer (KYC) practices that would significantly increase privacy and security for individuals even in a regulated environment. This morning, we published a conversation with Fireblocks CEO Michael Shaulov that delves into this "soft KYC."   Personally, I think the best-case scenario long term is that a large portion of DeFi gets regulated, and slowly eats away at more traditional trading technologies. Meanwhile, a smaller group of protocols that are truly and carefully decentralized will continue operating outside of regulation. The stakes are quite different, but you might compare it to the way online media piracy has evolved: Law enforcement has applied enough pressure to make it really hard to continue running a torrent site (prayers up for What.CD), but you can still find all the free Game of Thrones you could ask for if you're willing to do some research and take some risks.   The specific benefits of keeping stateless DeFi alive include giving dissidents and others access to tools that circumvent governments and corporations. That option only becomes more important as government and corporate oversight of our finances and internet activity becomes more terrifyingly normalized. Just as bitcoin will serve as a useful check on misguided national monetary policies, cultivating autonomous zones outside of state control will be a check on the most authoritarian impulses of lawmakers and regulators.   And just as the stateless utility of bitcoin is improved by the continued health of regulated centralized exchanges and other fiat onramps, regulated DeFi might be a net positive for its free-range counterpart. Both that potential and the concrete utilitarian benefits of even regulated DeFi make it worth thinking seriously about regulation, instead of just dismissing it out of hand.   –David Z. Morris Sponsored Content   BVNK: Why More Corporates Are Considering Adding Crypto Assets to Their Corporate Treasuries   More and more businesses are including cryptocurrencies as part of their corporate treasuries. The trend that was started by large publicly traded companies in 2020 is rising.   But as you're about to find out, companies like BVNK are helping the middle market do the same thing – whether that be midsize to large corporations, family offices or tech-savvy high-net-worth (HNW) individuals operating with $100,000 to $500,000 to invest. The Chaser... The Node A newsletter from CoinDesk See Previous Editions Copyright © 2021 CoinDesk, All rights reserved.  250 Park Avenue South New York, NY 10003, USA Manage your newsletter subscriptions  |  Unsubscribe from all CoinDesk email