DeFi should be self-regulated, says AllianceBlock founder

AllianceBlock’s founder, Amber Ghaddar, spoke to Coin Rivet on bridging the gap between centralised and decentralised finance and stressed DeFi needs to be self-regulated, but with rules created in conjunction with governments.

Dr Ghaddar explained AllianceBlock was founded as a company that bridges the gap between DeFi and traditional finance through next-generation financial infrastructure products.

When talking about DeFi being regulated by governments, Ghaddar told Coin Rivet it would ideally be self-regulated in order to achieve adoption and ensure longevity.

“We have to remember that crypto is still a nascent industry with an infrastructure that is quite different from traditional finance, and right now, most governments don’t have a sufficient level of understanding to implement effective policies,” she noted.

“You cannot blindly apply one single set of laws and provisions to decentralised technology – it’s too unique and new to be put under one letter of the law.

“It could be argued that regulator’s lack of understanding is partly the fault of the DeFi industry itself for not ironically ‘centralising’ efforts to not only lobby but also explain to key stakeholders how DeFi protocols actually work.”

Ghaddar also said there was no need to teach world leaders that DeFi can have many benefits, and DeFI is not here to evade taxes or launder money “as some seem to believe”.

She recalled the recent introduction in the US of the Infrastructure Bill included tax reporting provisions that apply to cryptocurrencies.

“A major consequence of this bill is that it has driven the decentralised crypto community to begin to centralise their effort to lobby and work together,” she said.

KYC and AML as necessity

According to the fact that the burden of compliance for institutional players is huge, Ghaddar explained AllianceBlock – which recently launched its DEX on testnet on two major blockchains, Polygon and Energy Web Chain – has focused on regulatory compliance, which is one of three layers in its protocol.

“This plays a huge role in giving institutional investors adequate compliance solutions,” Ghaddar said, adding that KYC and AML were a necessity.

“Banks that have inadequate KYC and due diligence regulations face fines that run into the billions for enabling illegal activities, while the cost of keeping up with compliance is extremely high,” she explained.

“For individuals to get involved, they must go through a number of KYC checks for each institution they sign up to, creating a large data footprint that must be managed in a compliant manner with legislation like GDPR.”

Ghaddar reiterated AllianceBlock aims to solve these issues by providing a solution that enables institutions to reduce their compliance burden, while still enabling them to meet all of the regulations they must adhere to.

“The AllianceBlock Trustless KYC/AML and Identity Verification product allows institutional and retail players to prove their identity in a trustless manner while letting them retain control of their data,” she added.

She continued to explain the product can be used by both traditional legacy institutions as well as DeFi firms as an alternative to the current KYC processes currently on offer.

“AllianceBlock offers an improved, more cost-effective and more trustworthy solution to everyone, helping bring the traditional and decentralised financial worlds closer together,” Ghaddar asserted.

Combination of centralised and decentralised sector

She also stressed that AllianceBlock’s mission was to bridge the gap between centralised and decentralised finance (DeFi), while also remedying issues in both industries.

“Long term, we want to create a new financial infrastructure combining these two industries and we are already beginning to deliver our mission,” she commented.

“Through our products and protocol, financial actors can access new opportunities to trade digital financial products legally, safely, securely, and in a fully compliant manner.

“Our unique ecosystem will merge traditional and non-traditional finance, offering the best of both worlds, creating a hybrid ecosystem founded on our belief that compliance and decentralisation are the bedrock of the future of finance.”

When talking about the legitimacy of the whole concept, Ghaddar emphasised AllianceBlock was compliant by design.

“We are building a next-generation financial infrastructure that aims to provide regulated financial entities around the world with the tools they need to seamlessly access the DeFi space,” she concluded.

“Our cross-border compliance rules engine is designed to simplify cross-border activity and ensure full compliance when traversing financial borders.”