Decentralized Finance: A Solution to Regulatory Barriers for Altcoins

Decentralized Finance: A Solution to Regulatory Barriers for Altcoins

Erik Voorhees, the founder of Shapeshift and a well-known advocate for Bitcoin, believes that decentralized finance (DeFi) has already addressed the issue of regulatory clarity that restricts people from possessing or trading a majority of cryptocurrencies. The crypto industry is worried that cryptocurrencies, other than the four listed on the newly launched EDX Markets, namely BTC, ETH, LTC, and BCH, may potentially be prohibited from trading in the United States. There is concern that the listing of these four cryptocurrencies on EDX reflects regulatory sentiment and could lead to a distinction between these four and all other cryptocurrencies, categorizing the latter as securities. Bitcoin, Ethereum, Litecoin, and Bitcoin Cash are the only four cryptocurrencies that regulators have publicly acknowledged as not being securities. On the other hand, the Securities and Exchange Commission (SEC) Chair, Gary Gensler, has consistently stated that all other cryptocurrencies are considered securities by the regulator. Furthermore, EDX is endorsed by established financial giants like Citadel Securities, intensifying fears that Americans will only be able to trade these four cryptocurrencies on exchanges controlled by Wall Street due to regulatory restrictions. Interestingly, the four tokens listed on the exchange have experienced significant interest, with BCH and Litecoin achieving impressive gains. Many individuals have called for unity within the industry to ensure that altcoins are not left behind in the United States.

The Role of DeFi in Addressing Regulatory Barriers

Despite concerns about regulatory barriers, Erik Voorhees believes that DeFi has already provided a solution. DeFi is inherently “permissionless,” meaning that if individuals wish to trade or own altcoins that are not listed on centralized exchanges, they can turn to decentralized protocols. These protocols do not require regulatory clarity or permission to operate, and governments have limited power to interfere, apart from potentially making DeFi-related transactions illegal. Voorhees emphasizes the immense power of this inherent feature, stating that governments can draft any laws they choose, but the protocols will continue to function unaffected.

One limitation of DeFi protocols is the absence of a direct connection to traditional banks for fiat on-off ramps. Consequently, altcoins without a fiat connection cannot be easily used for everyday transactions like purchasing groceries. To overcome this challenge, most individuals rely on centralized exchanges that offer fiat on-off ramps or engage in peer-to-peer markets where supported cryptocurrencies can be exchanged. Compared to DeFi, centralized exchanges like Coinbase and Binance have limited listings. Concerns arise that these choices may become further restricted to only four cryptocurrencies. However, Voorhees argues that this would not hinder DeFi protocols or altcoins. He believes that the industry only requires a “single ramp to banking” to function effectively, and this role can easily be fulfilled by Bitcoin. Currently, individuals convert unlisted cryptocurrencies to Bitcoin, Ethereum, or stablecoins when they intend to cash out to fiat, and this practice would continue, albeit on a more limited scale, in the United States. Voorhees’ arguments harken back to the fundamental reasons why Bitcoin and DeFi were initially established – to provide people with economic freedom and choice.

The concerns surrounding regulatory clarity for altcoins in the United States have raised apprehension within the crypto industry. However, Erik Voorhees believes that DeFi has already addressed this issue by offering a permissionless and decentralized solution. Despite the limitations of DeFi protocols in terms of fiat on-off ramps, Voorhees argues that a single ramp to banking, fulfilled by Bitcoin, would be sufficient. The foundation of Bitcoin and DeFi lies in providing individuals with economic freedom and choice, which remains a core principle in the face of regulatory barriers.


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