The Compliance Challenge in Decentralized Finance
At DC Fintech Week in Washington, a panel discussion tackled one of the most persistent questions in crypto: how decentralized finance projects can possibly comply with regulations. The conversation brought together experts from different corners of the industry, all wrestling with the same fundamental tension.
Maha El Dimachki from the BIS Innovation Hub’s Singapore Centre, Yaya Fanusie from Aleo, and Lee Schneider from Ava Labs joined me for what turned out to be a pretty thoughtful exchange. We kept circling back to this idea that compliance and DeFi seem inherently contradictory. I mean, the whole point of decentralization is that no single party controls what happens, right?
Developer Liability Questions
We couldn’t avoid talking about the Tornado Cash cases. Roman Storm and Alexey Pertsev’s situations hang over these conversations like a cloud. It’s not about their specific legal battles, but about the broader question they represent: are developers responsible for how people use their code?
Fanusie had an interesting take on this. He suggested we should think about it more as “risk management” than strict compliance. Developers should consider what problems might arise and build accordingly. It’s a subtle shift in perspective, but maybe a useful one.
Schneider pointed out something that struck me as quite important. He said developers and regulators actually share a common goal: neither wants users to lose their money. That’s a pretty significant point of alignment that often gets overlooked in these debates.
Finding Common Ground
El Dimachki, drawing from her experience at the UK’s Financial Conduct Authority, talked about outcome-based policymaking. The idea is that regulators should focus on preventing harmful outcomes rather than prescribing specific technical solutions. That approach might actually work better for DeFi’s unique characteristics.
What surprised me was the general agreement among the panelists that developers can take steps to stay within regulatory boundaries. The disagreement, as always, comes down to the specifics. How much responsibility should developers bear? What tools can they realistically implement without compromising the decentralized nature of their projects?
I left the conversation thinking that we’re still in the early stages of figuring this out. The questions are clearer than the answers. Can developers prevent criminals from using their projects? Should they even try? And if they do try, does that undermine the very decentralization that makes DeFi valuable?
These aren’t abstract questions anymore. Real cases are working their way through courts, and real developers are facing real consequences. The industry needs to find a way forward that preserves innovation while addressing legitimate regulatory concerns. It’s a tough balance, but one we can’t avoid.
