Because changing the old rules in favor of an emerging market seems unlikely, the DeFi space is prone to fraud and faces a huge flood of restrictions.
Over the years, we have seen many currents such as the initial public offering of Quinn, the initial public offering of exchange offices, collateral tokens, decentralized independent organizations, and many others, but none of these have become a major trend. The concept of decentralized finance undoubtedly has its advantages, but based on the fact that new innovations always destroy their ancestors, it can be concluded that the life of DeFi will not be long. Opportunity shrinkage for a number of reasons: firstly due to scams in this space. Second, the readiness of regulators to "protect" this market from violators by imposing new restrictions. Third, the lack of understanding that emerging cryptocurrencies are subject to traditional administrative inefficiency and inefficiency, because Fintech itself is a response to the ineffectiveness of their constraints. However, this completely new idea for cryptocurrency-based services has not yet found its place.
The swindlers are back
At the height of the Coins' initial public offering in 2017, many unscrupulous entrepreneurs sought to make huge profits from this emerging industry. Now it looks like those entrepreneurs are coming back. There is something called a "legal restriction" that frees criminals from punishment if they are not caught. When the term of a particular crime expires, the courts no longer have jurisdiction. In the United States, for example, the fraud restriction law is three to four years, depending on the state. This means that people who committed the crime during the ICO boom of 2017, as well as those who missed the opportunity to do so, may return to the market. In addition, they intuitively realize that the opportunity may be short, so they are likely to be aggressive and use more sophisticated tools to deceive.
Lawmakers are more prepared
Regulations on securities and exchanges in different countries, formal rules and procedures for financial markets and instruments include registration, licensing, due diligence, customer obligations and more. The possibility of fraud and violation of these laws leads us to another issue. In some cases, authorities may investigate fraudsters for committing crimes, as well as honest entrepreneurs for non-compliance. After years of exploring new technologies and emerging markets, regulators now have more knowledge than ever before. The sale of tokens disappeared from the scene due to two factors: scams that overshadow the emerging industry, and regulators demanding compliance with the law and fines for violators. Regulators are heroes who protect society from reckless transactions. (We will hear this story when many naive investors are deceived and demand justice).
Following the law is not an effective response to legislative pressure
Following the rules and procedures may be thought to be the best strategy for the emerging cryptocurrency market. But the reality is that old regulations restrict emerging industries. In fact, FinTech, and in particular decentralized finance, is a strong response to an inefficient, complex, and outdated administrative system. The new industry of token economics introduced easy ways to access resource accumulation as an alternative to hedge funds and traditional financial markets, but later administrative regulations reduced token sales.
Instead, some market segments tried to respond by introducing a collateral token (STO) as an alternative to the ICO. The STO wanted to put cryptocurrency startups into business practice, but did not become mainstream. Many people remember successful ICOs. Atrium (ETH) was itself the result of the initial release of the token, but who can identify a successful STO that can be compared to Atrium? The reason is clear: the market is reluctant to deal with outdated bureaucracies.
Did Liechtenstein's law fail?
Realizing that regulations needed to be changed, some countries sought to enact legal reforms. Unfortunately, they can not go beyond the paper-based regulatory model and the excessive involvement of central authorities. There are no intelligent rules and automated decision-making systems. For example, Liechtenstein, after two years of legislative work, introduced a new statute in 2019 called the Blockchain Act. A new bureaucratic structure capable of meeting the goals of the ICO and other FinTech initiatives is in place, but no one wants to use it, and today its public registry includes only one FinTech provider registered for four types of activity. Some legal advisers insist that this is just the beginning, but since registration is time consuming, outdated and bureaucratic, it is unlikely to have a bright future. As one of DeFi's most popular memes put it, "An hour here equals seven years on earth."
Conclusion
As the DeFi technology trend continues to overtake the rules, we may eventually see a better response from the authorities. They now detect misbehavior more quickly and come to accurate conclusions. They are educated and have powerful tools for tracking and analyzing transactions. But they will prosecute both fraudsters and honest entrepreneurs for not following outdated regulations. Therefore, the possible future of DeFi is that this emerging industry has shorter opportunities than others (ICOs, IEOs, STOs, etc.). Meanwhile, more scammers could step in and bring possible scandals to the attention of authorities, and regulators impose new restrictions to save the market and protect the public. In this case, the only appropriate response is to review Fintech's regulatory model and eliminate traditional tools such as paper-based administrative rules in favor of independent decision-making systems, which is another matter.
good Article