The reign of decentralized finance (DeFi) as a crypto-libertarian tool to circumvent government control of finance took another step toward the ash heap of history this week when a leading DeFi project was inducted in Panama.
SushiSwap, a leading decentralized exchange (DEX) and crypto lending platform, is moving towards a vote to hand over the supposedly leaderless project to two foundations and one corporation, which will offer a remarkably centralized version of decentralization.
Read more: CFTC lawsuit aims to rein in DeFi
While planning began months ago, it was based on legal advice aimed at mitigating risks of the kind that hit another DeFi project, crypto lender Ooki, last week when it was ordered by the Commodity Futures Trading Commission (CFTC) the Commodity Exchange Act (GWR) was sued for alleged violations. It was the first time any of the Decentralized Autonomous Organizations (DAOs) claimed to eliminate all management in favor of self-executing smart contracts controlled by token-holder votes.
See Also: DeFi Series: Unpacking DeFi and DAO
At that point, the makers of Ooki had already agreed to a $250,000 severance package and handed over management to a DAO. But in the lawsuit against the DAO, the CFTC made the allegation that anyone who held a DAO governance token or used one to vote on a DAO proposal could be legally liable for all the same complaints that the CFTC against Ooki’s pre-DAO creators. bZeroX and its founders. It opens the possibility of criminal charges for DeFi projects that do not comply with anti-money laundering (AML) rules, including user identification and suspicious transaction reporting.
Governance tokens are in widespread use, often less for actual leverage over the governance and management of the project itself than for the ability to use them to borrow and deploy as part of more complex DeFi yield farming projects.
See More: DeFi Series: What is Yield Farming and Liquidity Mining?
The SushiSwap proposal — made by a law firm hired for its experience in crypto and DeFi — would create a three-pronged structure: a Caymans-based foundation to create a governance council to “vote governance” manage”, to facilitate the coordination and to manage the chargeable project fund.
It would also have a Panamanian foundation to “manage the existing Sushi protocol” and hire developers for ongoing work, and a Panamanian company owned by the foundation “to run the GUI (front-end) layer of the protocol.” .
That’s a whole bunch of uses of the word “manage” for a supposedly decentralized project.
Of course, SushiSwap was never really DeFi — among the governance issues that token holders have always voted on was choosing a “chef” to lead the project based on community votes.
Incorporation into the Caymans and Panama would certainly make it harder for authorities to crack the project’s management. SushiSwap had previously considered and rejected a Swiss foundation that would give it the structure it needs to comply with various laws and rules to keep its remarkably human management structure and governance token holders out of trouble.
Broader Goals
The CFTC’s goal in filing the lawsuit against the DAO was “to demonstrate the CFTC’s commitment to aggressively pursuing individuals and their operations who specifically attempt to evade regulatory oversight,” CFTC Chairman Rostin Behnam said at the time of the Ooki Announcement. “Margin, leveraged, or funded trading in digital assets offered to retail clients in the United States must be conducted on duly registered and regulated exchanges in accordance with all applicable laws and regulations. These requirements apply equally to companies with more traditional business structures as well as DAOs.”
Based on messages posted on the SushiSwap governance suggestion forum, he was heard loud and clear.
A (presumptive) voter, identifying himself as Neil Bhasin, responded with exactly the sentiment Benham was looking for to others who had voted no to the proposal, largely because they felt it was going too fast
“I would like to point out that the effect of voting no and trying to slow down is that the risk and exposure to anything that contributes to sushi is prolonged, along with the project itself,” Bhasin said of his “Neilenbe “-Profile. “Maybe that’s an acceptable compromise for you, but I want to give direct credit to the elephant in the room.”
Another, who posted under “kagan” – and was identified as JaredC – said: “Regulation comes through enforcement. Just do it.”
What decentralization?
It is worth noting that the voting, which opened on September 22, received a total of 14 votes, of which 12 voted yes to the incorporation and incorporation plan.
According to DeFi Pulse, it is a project that investors currently have $28.4 billion locked into. At the height of the crypto boom a year ago, that figure was nearly $100 billion.
Nonetheless, SushiSwap has one of the more active DAO voter pools, industry news source CoinDesk said, citing data showing about 1,800 wallets voted on SushiSwap proposals over the past six months, compared to Ooki’s nine.
It was also noted that Jared Grey, who was recently voted “chef” – with 62% of the vote from two wallets – said on the SushiSwap Discord channel last week that “simply an unregistered group of people discussing governance vote referred to as DAO will not fly, and that is what the latest lawsuits are aimed at.”
And given those voter numbers, it won’t be too hard for the agency to push them through.
This brings with it an inevitable problem with the libertarian ideal of DAOs: there’s still a small core of people managing the decentralized projects.
The main difference between this type of DeFi and centralized blockchain-based FinTechs? DeFi is run by managers who cannot implement decisions without a shareholder vote that can take days or weeks.
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https://www.pymnts.com/cryptocurrency/2022/defi-platforms-tighten-aml-to-court-institutional-investors/partial/
See more in: BlockbusterDAO, CFTC, Cryptocurrency, DAO, Decentralized Autonomous Organizations, Decentralized Finance, DeFi, Editor’s Picks, News, Regulation, SushiSwap
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