One should not underestimate the growth potential of the decentralized 
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Follower : 0 show profile financial industry. However, there are some concerns as to whether regulation is necessary and, if so, how it would affect the future DeFi industry. It is not unlikely that regulation will be a concrete option, but not necessarily a requirement.
The current state of DeFi regulation
After some recent developments in decentralized finance, the call for regulation has become much clearer. Several protocols have come and gone – either due to carpet hauls, thefts, hacks, etc. – leaving investors and speculators without money. However, there are many protocols that do not suffer from such incidents and continue to provide value to their customers.
Most people agree that some level of regulation may be necessary. Many DeFi protocols do not take a no-custody approach. More specifically, they take control of users’ funds and people must trust these providers to follow proper business etiquette. For example, the separation of client and corporate funds would be a welcome requirement for such custody providers. Although some protocols do this by default, it would be beneficial if things improved.
However, one must also recognize that not all DeFi protocols are created equal. Some protocols carry lower or different risks than others, much like how TradFi companies A and B aren’t necessarily two peas in the same pod. There are different levels of risk in traditional and decentralized finance. This could indicate that there will be different levels of regulation in DeFi, and some projects may not need regulation at all.
Providers looking to build more credibility and clout should opt for the regulatory approach regardless of the service they offer. However, not everyone has the budget or expertise to acquire licenses, and these projects should continue either way. There is a difference between introducing industry best practices and stifling innovation through over-regulation.
DeFi compliance as a service
A potential solution could be offered by Phree, a team aiming to bring more legitimacy to decentralized finance. Specifically, the team is working with Swiss regulators, Mastercard APAC and other entities to address the lack of regulation, accountability and security. Phree will not only help improve existing DeFi protocols, but also enable TradFi companies to explore decentralized finance opportunities.
In addition, the protocol introduces a framework for building DeFi solutions that comply with the necessary regulations. The team calls this “reverse decentralization,” and it’s a non-invasive approach to help developers and teams explore this option. If decentralized finance is to go mainstream, compliance will prove essential. The incorporation of risk control, security, KYC/AML procedures and measures to combat price manipulation are just a few ideas to explore.
Introducing regulation may result in fewer countries banning decentralized finance altogether. China has “banned” DeFi, and Russia may take a similar approach. Other regions want to maintain a favorable approach through regulatory means, as the industry still poses “limited risks” to mainstream funding.
Final Thoughts
It makes sense to impose regulations on companies that offer credit and credit or risky financial services. However, things look a little different when it comes to yield farming, liquidity provision, etc. These segments are likely to remain unregulated – for now – provided they are accessible through non-custodial providers.
There is still much to be clarified as regulation is a broad concept when intermediaries may not always be present.
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