Will DeFi's peer-to-peer finance survive regulations?

It will take decades for DeFi to materially absorb global finance, this is a reality most enthusiasts may not be able to embrace.

Peer-to-peer finance in this context refers to permissionless, non-custodial finance built on open smart contracts, where users keep custody (sole control) of assets, centralized intermediaries are absent, access is open to all and code rules remain immutable.

The rising question here is an attempt to assess if regulations may catch up to truly permissionless finance solutions and force them into compliance that effectively defeats their purpose.

Surviving regulation is where we can confidently say "we've won" — otherwise DeFi never gets to truly fix the money nor the system.

Reach vs Availability

I think that anyone with an above average understanding of decentralized finance, crypto and blockchain in general and finance, in the grand scheme, can answer the question posed.

I can say with almost certainty that most answers will include everything but a "Yes or No" which is what was really needed, and the reason is because the question in itself fails to recognize two factors that make all the difference and this is how reach differs greatly from availability.

When things happen in the general markets, we often will find people making comments like "Bitcoin keeps producing blocks."

This 4 word sentence is an attempt to paint a picture of resilience, exceptionality, or even superiority, for Bitcoin.

The problem, however, is that it often ignores that being available doesn't necessarily translate to value.

The fact that the network still produces blocks isn't a sign of the attributes mentioned above because it is one thing to be available (in this case "functional") and another to be in reach (accessible and ultimately usable).

DeFi, peer-to-peer finance can always be available, in that the smart contracts will remain active on-chain, executing the predefined rules, but if users have no means of reaching (accessing) them, then it is effectively useless.

Regulations cannot directly control contracts, so the focus will often rest on the access paths.

The on/off ramps where users get money moved to/from traditional systems to the on-chain markets. The stablecoin issuers, the hosted frontends, Oracle services, domain providers, identifiable developers, these are all means that essentially connect people to these decentralized solutions.

Someone needs to develop and host the websites and they will use a bunch of services to ensure a range of things work. This person and the companies offering those services is where regulations will focus on.

So will peer-to-peer finance survive regulations?

That depends greatly on how much compliance is forced on everything else that enables the "reach" factor that would make all decentralized solutions useful.

This is why I believe it will take several decades because it isn't a single market that is changing, it is all markets and governance systems.

Everything needs to achieve some level of power over compliance requirements before finance can enjoy p2p and all decentralized solutions.

Posted Using INLEO