Crackdown by BitMEX Will Fuel DeFi, Industry Insiders Hope

Several industry insiders argue that a recent crackdown by US regulators on the crypto derivatives exchange. BitMEX has shown once and for all that decentralisation is the way forward for those offering crypto-related services.

The charges brought against BitMEX. By the US Commodity Futures Trading Commission (CFTC) are “bound to push more cryptocurrency projects toward decentralisation,”. According to the decentralised finance (DeFi)-focused newsletter, The Defiant.

The newsletter cited Jake Chervinsky, general counsel at the Compound Finance DeFi platform. Saying that the complaints of the regulator against BitMEX would not apply to DeFi protocols. Because “most governance token holders do not “operate” a protocol in the manner. That a centralised exchange company’s owners “operate” a trading platform.”

DeFi protocols are self-executing, autonomous code. “Chervinsky further said, adding that DeFi protocols do not hold the funds of their users as opposed to centralised exchanges.”

Anil Lulla, co-founder of crypto research firm Delphi Digital, also commenting on the developments. Is quoted in the article as saying that he sees the crackdown as good “in the long term” for DeFi. He also added, however, that “it will still be interesting to see whether or not DeFi products can dodge KYC / AML [know-your-customer / anti-money laundering] in the future,” while noting that regulation.

“Lulla reiterated this view yesterday by writing on Twitter, saying the incident is” Bearish on CEXs [centralised exchanges] without KYC, “and” bullish for long-term DeFi.

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A similar sentiment was also shared by Messari’s crypto researcher, Ryan Watkins, who noted on Twitter that in just the past week we have seen both “a major exchange hack” (KuCoin) and a “major regulatory crackdown”. You’re just not paying attention if you don’t understand the value of DeFi now, “the crypto researcher added.”

However, some believe that government agencies will increasingly come after those who provide these services. Often referred to by regulators as Virtual Asset Service Providers (VASPs). Despite decentralised finance applications largely aimed at avoiding the long arms of regulators.

It is plausible that these decentralised exchanges may fall under the scope of global regulators as DeFi continues to grow. “In a recent report on KYC practises in the crypto industry, FATF [Financial Action Task Force] already considers decentralised exchanges” VASPs, “and FinCEN applies the same regulatory consideration to DEXs as it does to Bitcoin ATMs (BATMs),” blockchain forensics firm CipherTrace noted.

However, regardless of how the crackdown could push the industry to further decentralise. BitMEX users have already responded by pulling their coins from the exchange. With more than BTC 23,000 (currently, USD 240.3 m) leaving BitMEX last night in a single hour, as noted by the on-chain analysis firm Glassnode: