My takeaway: anything that the SEC would be able to crack down on in this way is not decentralized enough to call itself “DeFi”.

If there are individuals or a business in privilege or power that the SEC can come after, then it’s just CeFi-on-a-blockchain.

In a way I think this kind of enforcement forces projects not to be compliant but to structure themselves in such a way that there’s no-one “running things”.

As soon as you’re attempting to extract value in an asymmetric way, you will have a lot of interaction with national authorities.

If decentralized means outside the ability of regulators to regulate, then is also needs to be “detached” in the sense that no money can exchange in or out. Any company that accepts or disburses money (in a “currency”) as a component of its DeFi can be regulated.

Basically, in-game currency.

> Any company that accepts or disburses money (in a “currency”) as a component of its DeFi can be regulated.

That’s the point. If you run a business and take custody of customer funds you’re on the hook. With real decentralized solutions this is obsolete and legacy.

AFAIK, simply accepting payment in cryptocurrency for goods and services does not make you a VASP under currently proposed legislation.

It’s going to be interesting to see and decisive where different countries draw the line of what constitutes a VASP.

> If decentralized means outside the ability of regulators to regulate, then is also needs to be “detached” in the sense that no money can exchange in or out

I don’t see how that follows. You will have regulated VASPs requiring KYC/AML from their customers (much like banks etc In traditional finance).

Then you have individuals doing peer-to-peer transactions. Those who transact between assets and yield profit will have to pay capital gains tax on that.

(Unless by “money”/“currency” here you’re referring to fiat currency and not cryptocurrency? In that case yeah. But we have stablecoins. My argument is that the regulation and enforcement actually serves to accelerate the adoption, since touching fiat or working as a traditional company is becoming increasingly encumbered with red tape)

Yes, I meant fiat currency (US dollars, etc.).

I get that the point is to have a parallel currency of crypto. If I purchase a stablecoin with fiat, I’ve exchanged, there it is. If I earn my salary in crypto, pay for my groceries, and never exchange for fiat, then I’m fully detached.

I still don’t see how that follows for individuals. As long as you’re self-reporting and paying relevant taxes, you’re in the clear. Even if you use privacy-preserving technology to protect yourself from surveillance from private and foreign interests, you should still keep records that can be submitted as proof to tax authorities if required.

(Maybe the approach of legislators and regulatory bodies will change; this is reflecting my understanding of recent developments)

My point was that the regulatory system connects to how money moves. The interfaces where money comes in and out are places that regulation easily touches. I rather doubt the SEC would care if money wasn’t involved (purely in-game currency).

The biggest problem is the SEC only has US jurisdiction. so good luck trying to enforce in other countries.

Providing services in other countries means abiding to their rules too

Seems a bit FUDy

Author says:

Using language that could not be more clear, she effectively calls virtually all existing DeFi projects illegal.

Then goes on to quote:

For example, a variety of DeFi participants, activities, and assets fall within the SEC’s jurisdiction as they involve securities and securities-related conduct

So in what world is "a variety" = virtually all?

What I don’t understand is that cryptocurrency is considered property. NOT A CURRENCY. So how could the reward of more property; via defi mechanisms like yield farming, be considered a security?

Some digital tokens are considered securities. Those, too, can be used with many of these platforms and protocols.

It also depends on the nature of the yield and marketing.

Just like you can issue paper that constitutes a security in exchange for taking custody of fiat currency.

All they want is for companies to act like they are publicly traded, i.e. file an S-1 and provide relevant information? Hold my beer...