Artificial Intelligence Could Make DeFi Compliance Less Messy

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The crypto industry has rebounded after a brutal period defined by scams, scandals, massive price declines and continuing gaps in real-world utility.

As the industry stabilizes and innovation once again flourishes, decentralized finance’s (DeFi’s) progress has come to symbolize the growth and maturation of an industry some predicted would evaporate as it sunk deeper into a bear market.

However, as the crypto industry seeks greater legitimacy amid increased ties with the traditional financial world, DeFi’s messy compliance issues will eventually be spotlighted.

Centralized Web 3.0 organizations operating in major markets like the US, UK and EU have a general understanding of what is expected of them to comply with security laws, anti-money laundering and other consumer safeguards.

Due to its unclear status, DeFi doesn’t have the same luxury, which could undermine its acceptance among institutions and the public, effectively halting its growth.

Therefore, the expanding DeFi ecosystem should enact some measures and standards in anticipation and preparation for future regulatory actions.

DeFi can’t maintain its progress without compliance

From KuCoin to Binance and now Uniswap, many of the industry’s largest exchanges have come under – just or unjust – scrutiny from regulators and the public over fraud and money laundering concerns.

Recent SEC involvement alongside a developing EU manifesto (MiCA) focusing on digital assets has built the basis for an evolving regulatory landscape that aims to shake up the industry.

US efforts to wrangle the industry into compliance have focused on stronger risk mitigation, while the EU has prioritized transparent governance.

We have yet to see how this will impact DeFi, and to a lesser extent, Bitcoin – but major changes that affect user anonymity and more are expected.

While DeFi is naturally harder to regulate due to the absence of a centralized body, internal debates over whether DeFi should do more to ensure criminals and terror organizations aren’t exploiting its protocols and applications continue.

Traditional financial regulatory approaches aren’t fully compatible with today’s automated, smart contract-dependent protocols, and imposing old frameworks on a new and innovative asset class would likely derail its development.

Regulating decentralized systems will always come with its fair share of challenges – not to mention opposition from some…