The future of decentralized exchanges (DEX) depends on the balance between the need for regulation and the preservation of key principles of decentralization. DEXs are attractive for their anonymity, self-storage of assets and direct access to global financial markets, but these same characteristics make them a potential target for regulators.
Attempts to regulate and subordinate DEX exchanges
1. KYC and AML: DEX exchanges are often criticized for their lack of Know Your Customer (KYC) and Anti-Money Laundering (AML) policies, making it difficult to fight illegal activities. Currently, most regulators want exchanges to implement KYC to identify users and adhere to AML to prevent the financing of illegal transactions. However, the implementation of KYC on DEX contradicts the idea of full decentralization, because it requires centralized control.
2. Potential methods of influence: Some jurisdictions are already beginning to impose restrictions on access to DEXs through blocking IP addresses or cooperation with central Internet providers. Other states may require reporting from developers of platforms that create DEXs, or even ban access to these platforms in their local markets.
3. Autonomy of smart contracts: Since DEXs use smart contracts to manage trading, regulation can become difficult. Smart contracts typically perform trades automatically and are difficult, if at all possible, to monitor once deployed on the blockchain. This complicates any potential regulation, as smart contracts typically cannot be modified or removed.
Possible future scenarios
1. Attempts to integrate KYC at a basic level: Some projects may start implementing basic KYC methods to adapt to new regulations and preserve markets. For example, platforms can implement KYC through special tokens or access levels. But this is likely to limit their influence among audiences seeking total privacy.
2. Emergence of Hybrid DEX Platforms: Hybrid DEX models may emerge that retain certain principles of decentralization but also offer options for KYC verification. Such models can offer users the choice of getting higher access or discounts after KYC, or staying at anonymous levels but with lower limits or restrictions.
3. Development of fully decentralized networks (DeFi): Some users and developers may move to fully decentralized platforms where DEXs function as part of self-governing decentralized autonomous organizations (DAOs). This will allow to create more stable models, but will make mass implementation difficult due to the complexity of use.
A critical view of crypto enthusiasts
1. Risk of loss of privacy: For crypto-enthusiasts, introducing KYC on DEX is tantamount to losing the main goal of decentralization. The idea that users have complete control over their funds without third party intervention is the main reason for the popularity of DEX.
2. Possible outflow of users: Increased regulatory pressure on DEXs, as well as on cryptocurrencies in general, may lead to an outflow of users to other, less regulated platforms. DEXs may simply continue to exist in a form of P2P exchange, making it difficult to track and control.
Visnovok
Successful DEX regulation requires a balance between the need for control and preserving the principles of decentralization. KYC integration on DEX is possible, but will likely be implemented on a voluntary basis or in hybrid forms. Progressive countries like Ukraine have a chance to set an example for others in creating a smart framework for cooperation with DEXs that simultaneously supports innovation and ensures transparency.
