DeFi has been an insanely growing sector of the entire cryptocurrency industry- but it has also faced quite a few regulatory challenges from the SEC. With most of the regulators struggling to keep track of the innovations taking place, the innate lack of clarity around the regulations has definitely created some form of uncertainty for the many projects of Decentralized finance.
In an interview with Alastair Johnson, the CEO of Nuggets- a super wallet stated that one of the major challenges to crypto regulation was the anonymity of the basic DeFi platforms- which made it even harder to comply with the Know Your Customer, as well as the Anti-Money Laundering regulations. Nuggets, for those wondering, seek to deliver self-sovereign decentralized identities to the users.
DeFi Has To Maintain Regulatory Compliance
While one can understand that privacy has always been a cornerstone of DeFi, compliance with regulations is extremely essential to create a sense of safety amongst users, whilst ensuring that the platforms of decentralized finance had been operating within the law. Johnson stated that regulatory compliance implies implementing both the AML, as well as the KYC procedures.
And this implementation can be done without compromising the privacy of the user by creating non-correlatable peer Decentralized Identifiers, and zero-knowledge proofs. Along with that, the audible data could be encrypted in order to safeguard the private keys of the participant- while still complying with the regulatory requirements.
Johnson believes that DeFi platforms usually take measures that ensure regulatory compliance whilst maintaining the decentralization of their ecosystem. According to him, the platforms are capable of incorporating decentralized identity solutions in order to verify user identification while they are maintaining their decentralization.