As you may remember (link to a respective forum post), the FATF is expected to issue its amended guidelines on crypto very soon. This document may become the cornerstone of the global AML framework for DeFi and, as such, may be very relevant for Maker.
Let’s wait for the final document before discussing this specific topic further. However, it’s a good occasion to start mapping out general policy challenges and opportunities for Maker.
Why is this relevant? Significant policy and regulatory developments are often game changers in terms of projects’ competitive (dis)advantages. On the one hand, restrictive guidelines may stifle Maker’s growth. On the other hand, it may turn out that what will be a bump in the road for Maker may be game over for stablecoin newcomers.
I want to underline the last point. Monitoring, analysing and responding to policy developments is not only about trying to survive in an adverse regulatory environment. A good understanding of policy trends and an ability to influence them and adapt to changing circumstances is a great opportunity for Maker to excel—especially with all plans to onboard RWAs and scale up beyond the crypto bubble.
To put it simply, it is not enough to survive and avoid regulatory scrutiny. To grow and outcompete traditional finance, Maker will need sophisticated regulatory thinking embedded in its overall strategy.
Notably, the release of FATF guidelines will be a significant, yet just one of many developments that have taken place over years. I want to kick off the discussion over what is and what is not relevant and see the community’s thinking about some of the emerging trends.
These are some of the most notable trends of relevance for Maker:
- Regulation of stablecoins
Obviously, Dai is the core product of MakerDAO. It has already been a few years since stablecoins became one of the main topics of interest for policymakers, financial regulators and central banks. Initially, the work was focused at the international level; it culminated in October 2020, when the Financial Stability Board has issued their recommendations in terms of regulation of global stablecoins, among the work conducted by the FATF, BIS, IOSCO, OECD, etc. Currently, we have entered a phase of building national regulatory frameworks for stablecoins, including MiCAR in the EU, plans in the UK, some attempts in the US, etc. The results of these ongoing processes will decide the fate of Dai, especially as a widely available and freely tradable asset (in particular for retail holders and use in incumbent finance). Of course, developments in terms of central bank digital currencies are also going to be very relevant.
- Regulatory scrutiny on DeFi
Since Maker is a major player and pillar of DeFi, any significant regulatory scrutiny of the space may have a huge impact on Maker, including its ability to grow and make an impact beyond core crypto. It is the DAO’s homework to think about potential vector attacks in terms of the entire DeFi space and those relevant and/or specific to Maker. The list includes securities law and banking law. Even if scrutiny is not directly applied to MakerDAO, it may harm the DAO and its ability to grow.
- New approaches to regulating DeFi
Similar to the one above, this trend is also about how policymakers approach DeFi. However, the difference is that beyond the enforcement of the current rule, I there is a lot of actual interest in policymaking and regulatory circles in terms of understanding what DeFi is all about and how it could be regulated. This discussion is, to some extent, still happening behind closed doors, but the recently published WEF DeFi Policy-Making Toolkit may give you a feeling of what the discussion topics are. While it is not about direct enforcement, the long-term impact may be a big challenge—as part of the discussion, there is a trend of looking for so-called regulatory access points beyond traditional financial intermediaries, which is directly relevant for Maker (e.g. because of the structure based on core units).
- AML/KYC and sanctions regimes
Because of the aforementioned new FATF guidance (but also steps already considered by individual countries—remember the US FinCEN’s proposal?), this is one of the most urgent and important areas for Maker (and all DeFi). Some of the proposed approaches may hit the very core of DeFi, as they may petrify the role of traditional intermediaries in financial services, overburden individuals, DAOs, etc. with regulatory obligations and liability, impose unrealistic requirements on decentralized structures and create huge tensions between the overall anonymity of DeFi and the forced transparency of financial transactions.
This is far from a complete list of challenges, opportunities and trends and naturally provides a very basic outlook. Let’s start discussing these topics though. Please help expand the list and provide your own thoughts, which could lead Maker towards determining its strategy and action items.