Revised FATF Crypto Guidelines Could Spell The End of DEXes and DeFi

Dave Jevans, the CEO of crypto analytics firm CipherTrace, warned that regulators are looking to equalize compliance rules between decentralized and centralized exchanges. The knock-on effect poses questions on the operational feasibility of the segment and the DeFi platforms and protocols.

Q: Based on the new FATF draft guidance, it sounds as if a “DEX like Uniswap would be subject to the same compliance rules as a centralized exchange like Coinbase…?”

A: “That’s correct.” –@davejevans

What effect could these requirements have on the development of DeFi? pic.twitter.com/IE96DLD50b

— Laura Shin (@laurashin) April 4, 2021

FATF Crypto Guidelines Gunning For DEXes

Last month, the Financial Action Task Force (FATF) issued revised guidelines for the crypto industry. Commenting on the amendments, the Director of Research at Coin Center, Peter Van Valkenburgh, said the changes were akin to mass warrantless surveillance.

Van Valkenburgh highlighted three areas of concern with the new guidance. They were surveillance obligations for non-custodial entities, scrutinizing peer-to-peer and privacy technologies, and customer counterparty identification.

Jevans expanded on Van Valkenburgh’s initial comments by saying FATF is looking to widen the definition of Virtual Asset Service Provider (VASP). This would obligate more entities, including non-custodial persons, to register with the local regulator to collect and report information on their activities and the activities of others.

“To me, I think point 79 comes across as the biggest one, which really is broadly the definition of a Virtual Asset Service Provider. To whom these regs would apply to…

whether it’s directly through transaction fees or indirectly through the price of a coin going up that they use to pay for fees and things of that nature would potentially fall under the umbrella of VASP, which would broadly cover pretty much almost every DeFi platform.”

In short, DEXes, whose primary…