Archive for the ‘Decentralization’ Category
DeFi at a Crossroads: New EU Regulations Poses Risk to the Future of Decentralization – Coinfomania
New European Union regulations may soon force decentralized finance (DeFi) protocols to face significant decisions. At the center of this issue is the tendency of many DeFi protocols to utilize centralized front-ends and intermediaries, raising questions about their compliance with upcoming laws.
The EUs Markets in Crypto-Assets Regulation (MiCA), set to take full effect by the end of 2024, mandates that DeFi protocols adhere to the same licensing and Know Your Customer (KYC) requirements as traditional financial services. This could present a substantial challenge for many DeFi protocols, potentially making compliance difficult or undesirable. Rune Christensen, co-founder of MakerDAO, highlighted the implications of MiCA, noting that DeFi protocols would be left with two primary options: fully decentralized, local, downloaded front-ends, or fully KYC-compliant online front-ends.
This regulatory shift forces DeFi protocols to choose between a somewhat centralized hybrid finance (HyFi) model to comply with EU regulations or complete decentralization. The EU regulation stipulates that fully decentralized protocols are exempt from MiCA requirements, as stated in Recital 22: Where crypto-asset services are provided in a fully decentralized manner without any intermediary, they should not fall within the scope of this Regulation.
Oliver Vlkel, an attorney and partner at Stadler Vlkel, has extensively studied the EUs regulation of crypto assets. He points out that the regulation raises immediate questions about the definitions of without an intermediary and in a fully decentralized manner. According to Vlkel, smart contracts used in providing crypto-asset services do not necessarily create the appearance of exclusive decentralization, as companies can use these contracts to provide services in their name.
Only natural persons and legal entities can hold rights and obligations, make and receive legal declarations, and be subject to laws like MiCA. However, Vlkel believes that EU lawmakers correctly acknowledge that none of these conditions apply if a crypto-asset service can be accessed without an intermediary in a fully decentralized manner. With MiCA coming into full force by the end of 2024, DeFi protocols in Europe must decide whether to fully decentralize, thus avoiding regulations, or implement KYC measures like any other centralized financial service provider.
Nathan Catania, a partner at XReg Consulting, a firm specializing in crypto-asset regulation, suggests that this regulatory wave could divide the DeFi sector. He believes that regulation represents a crucial juncture for many DeFi projects, pushing them to either embrace full decentralization and operate outside regulatory boundaries or accept some level of regulation and transition towards a hybrid finance model.
For those choosing decentralization, MiCA will provide clearer guidelines on building truly decentralized applications that comply with regulatory requirements. Many DeFi protocols will need to reevaluate their business models to ensure they remain compliant. Catania advises DeFi projects to thoroughly understand the regulation and engage with national regulatory authorities to protect their interests. One workaround for ensuring decentralization is decentralizing website front-ends through peer-to-peer (P2P) web hosting, which uses advanced cryptography to deploy websites on P2P servers.
Regardless of the path chosen by a protocol, regulation is becoming an unavoidable reality. Advocates of decentralization might witness DeFi evolving into something closer to traditional finance, the very sector they originally aimed to disrupt. The question remains whether the industry will thrive in a decentralized digital universe or if the influx of capital from traditional market players will transform the sector.
As the DeFi sector matures and gains popularity, regulators are paying increased attention, exemplified by the EUs MiCA and the United States Securities and Exchange Commissions actions against prominent DeFi protocols. On April 10, 2024, Uniswap became the first decentralized protocol to receive a Wells notice, indicating regulatory infractions.
Hayden Adams, CEO of Uniswap, expressed his frustration, feeling annoyed, disappointed, and ready to fight. Adam Simmons, chief strategy officer at DeFi platform Radix, believes that some safeguards are necessary, predicting that regulatory requirements for DeFi are inevitable, especially if the sector aims for global adoption.
Edward Adlard, CEO of Instalabs, sees the next evolutionary step for DeFi as attracting institutional and traditional finance money. However, he identifies two main obstacles: traditional finance companies are not operationally equipped to use crypto tools, and they need to figure out how to legally access and offer these products to clients. Adlard suggests that DeFi DApps need to balance implementing Anti-Money Laundering (AML) procedures to attract traditional finance liquidity without becoming targets for regulatory action.
Compliance tools are already available. Simmons mentions that the DeFi sector in Europe could employ a system of trustworthy issuers to handle ID verification independently. Adlard notes that DeFi KYC service Instapass could create custom credentials that meet EU regulations, allowing DeFi DApps to restrict access to specific parts of their products based on user credentials.
Ultimately, whether a DeFi protocol pursues institutional adoption or complete decentralization, it must adapt to the evolving legal landscape in the European Union.
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DeFi at a Crossroads: New EU Regulations Poses Risk to the Future of Decentralization - Coinfomania
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zkSync Unveils Final Protocol Upgrade in Anticipation of Token Launch – Coinfomania
zkSync, an Ethereum Layer-2 network, has achieved a pivotal milestone in its journey towards decentralization with the upcoming release of its final protocol upgrade, v24. This significant update is poised to transfer network governance to the community, signaling the culmination of zkSyncs decentralization process and potentially heralding the launch of a governance token.
Since incorporating EIP-4844 in March, zkSync has been steadfast in its pursuit of full decentralization. The impending v24 release represents the last essential upgrade required for this transition. The company anticipates completing all remaining steps by the end of June. This meticulous process demands careful consideration of both technological and legal frameworks, as zkSync prioritizes long-term technological development over immediate gains. The aim is to establish itself as a pivotal player in the blockchain industry, driving the advent of a verifiable internet era that can serve billions of users.
The announcement of the v24 upgrade has ignited speculation regarding a possible token launch. zkSync has hinted at an upcoming governance token airdrop slated for the end of June. This potential airdrop has been eagerly anticipated since last year when investors moved over $8 million worth of tokens to zkSync, hoping to qualify.
Currently, the total value locked (TVL) in zkSync is $141 million, according to DefiLlama. In a recent post on the X platform, zkSync confirmed that the v24 release will be the final protocol upgrade before transferring network governance to the community, with the remaining components expected to be completed by the end of June.
zkSync, which specializes in zero-knowledge (ZK) rollup technology, aims to scale Ethereum by facilitating cheaper transactions through off-chain computation and data storage. This Layer-2 network leverages zero-knowledge cryptography, a cutting-edge advancement in blockchain technology.
The issuance of a governance token is viewed as the next logical step following a series of airdrops from projects like EigenLayer, Renzo, Ethena, and Wormhole, which have chosen to reward early adopters instead of conducting traditional token sales. This strategy is designed to cultivate a sense of loyalty and involvement within the community.
Matter Labs, the company behind zkSync, has secured $458 million from investors including Blockchain Capital and Dragonfly Capital. This financial support is intended to bolster zkSyncs mission to develop scalable and efficient blockchain solutions. In April, Circle, a major stablecoin issuer, extended support for its USD Coin (USDC) to Ethereums zkSync.
This integration allows USDC to be utilized on a scalable platform, enhancing its application across various decentralized finance (DeFi) protocols. USDC on zkSync remains redeemable on a one-to-one basis for U.S. dollars through Circle and can be transferred across chains via cross-chain bridges.
zkSync has recently exceeded Ethereum in monthly transaction volume, processing over 35 million transactions in the last 30 days, compared to Ethereums 34.2 million and Arbitrum Ones 31.4 million. This surge in activity is largely driven by the growing popularity of zkSyncs inscriptions, which witnessed a record 5.3 million transactions in a single day following the launch of its sync inscription. This increase in transaction volume has occasionally led to network congestion, highlighting both the demand for zkSyncs services and the challenges of scaling.
Furthermore, the total value locked (TVL) in zkSync has surpassed $500 million, marking a 12% increase in just one week. This significant rise in TVL underscores the networks growing popularity and the confidence investors have in zkSyncs scaling solutions. The networks capability to handle high transaction volumes and its expanding ecosystem of decentralized applications position zkSync as a leading Ethereum Layer-2 solution.
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zkSync Unveils Final Protocol Upgrade in Anticipation of Token Launch - Coinfomania
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What is MakerDAO’s Upcoming PureDai and NewStable? – BSC NEWS
This initiative aims to enhance decentralization, reflecting the original vision of DAI.
Rune Christensen, CEO and co-founder of MakerDAO, announced plans for dual stablecoins, PureDai and NewStable in arecent post on X, which aims to replace the current stablecoin DAI. This move is described as a "return to the ideological roots of DAI," highlighting increased decentralization.
PureDai is an upcoming stablecoin from MakerDAO that will be designed to operate exclusively on the Ethereum mainnet. Unlike its predecessor, DAI, which relies on a mix of centralized and decentralized collateral, PureDai will use only decentralized assets like Ethereum (ETH) and staked Ether (stETH) as collateral.
This shift aims to enhance the stability and trustworthiness of the ecosystem by eliminating centralized dependencies.
A notable feature of PureDai is its reliance on decentralized oracles for price feeds, ensuring that no single entity can manipulate its value.
Additionally, PureDai will have a free-floating peg, meaning it may not be directly tied to the US dollar. This approach allows for a more decentralized and resilient stablecoin, catering to users who prioritize decentralization over fiat stability.
According to the MakerDAO co-founder, PureDai will be released in its final, immutable form after a few years.
Once PureDai is available, DAI holders will have the option to upgrade to this new stablecoin. Christensen stated that this transition aligns with MakerDAOs commitment to decentralization.
The existing DAI will eventually phase out as users migrate to either PureDai or another new stablecoin, NewStable.
NewStable is another upcoming stablecoin from MakerDAO, designed to be a straightforward upgrade to the current DAI.
With a focus on growth, yield, and resilience, NewStable will be the primary successor to DAI. Rune said the decentralized stablecoin would be created with utility and adoption in mind.
Most Dai use cases will be succeeded by NewStable, which will focus on mass market adoption and regulatorily compliant Real-World Asset (RWA) backing, with decentralization used as a powerful tool to ensure transparency, resilience, and checks and balances, Rune Christensen said.
Furthermore, NewStable will incorporate a freeze function similar to those found in other major stablecoins backed by RWA.
Unlike PureDai, NewStable will maintain a traditional USD peg and comply with regulatory requirements concerning real-world assets.
This dual-path strategy will reportedly offer users a choice between complete decentralization with PureDai or a regulated, fiat-pegged option with NewStable.
Christensen expects that, over several years, all users and integrations will transition to either PureDai or NewStable. The original DAI will be fully deprecated once this migration is complete.
In addition to the changes to DAI, Christensen provided insights into the future of MKR, MakerDAOs governance token.
MKR holders will have the opportunity to upgrade to a new governance token, NewGovToken, at a ratio of 1:24,000. This transition aims to align the governance structure with the new stablecoin projects and ensure continued community involvement.
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What is MakerDAO's Upcoming PureDai and NewStable? - BSC NEWS
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