Regulations
DeFi regulations depend on the underlying business model. Different regulations apply for the peer-to-pool-to-peer (most of DeFi) and peer-to-peer (SmartCredit.io). Transactions monitoring is mandated
Borrowing/Lending regulations drive the respective models. So far, the crypto lending sector has two business models:
- Peer-to-pool-to-peer - This is based on assets pooling and offering interest on these pools. Most of DeFi is pooling assets and is therefore automatically classified as a security product (requires an SEC registration)
- Peer-to-peer - This is purely peer-to-peer, without pooling any assets. In this case, there is no classification as a securities product (SEC registration is not required). That's what SmartCredit.io is doing.
Virtual Asset Service Provider regulations apply to all CeFI companies. Virtual Asset Service Providers are mandated to do:
- KYC and AML - most CeFi companies do this
- Transactions monitoring - most CeFi companies don't do this because there are no tools available. AI-based Crypto Fraud Score API (via https://swagger.smarttrust.io) allows implementing continuous transactions monitoring
We think that not in so far future the following will happen in DeFi:
- Virtual Asset Service Provider regulations will apply in the future to the DeFi companies too
- DeFi companies will be mandated to do the KYC and AML
- DeFi companies will be mandated to do Transactions Monitoring
- DeFi companies will be mandated to register their borrowing/lending systems as securities products with the SEC (if they pool the assets)
Last modified 26d ago