Welcome to the DeFi revolution, where a new, decentralized future of finance awaits—unencumbered by the limitations of legacy financial institutions. Yet, lurking in the shadows is an even greater danger – misguided regulation. I'm not talking about all regulation. We need some. What I am talking about are the myths that fuel knee-jerk reactions from policymakers, the kind that could strangle innovation in its crib.
To get a sense of that world, I talked to Evgeny Skigin, a shareholder at Bitclear.co, a company that’s been travelling this road since 2014. Bitclear’s odyssey takes them from Denmark to Malta and finally Liechtenstein. Yet this path underscores the difficult regulatory minefield that DeFi businesses need to traverse to avoid pitfalls. Evgeny’s reflections are a goldmine! They assisted me in articulating three deeply persuasive but dangerous myths that are working right now to warp the regulatory environment for the worse.
Regulation Equals Instant Legitimacy?
Myth 1 Falsely assuming that just by putting a regulatory paint on something that it’s somehow legitimate and trustworthy. This is patently false. Think about the 2008 financial crisis. There were regulations already, but their enforcement wasn’t able to stop rampant law-breaking and as a result, a global economic crisis.
In DeFi, an environment where harm can be widespread and instantaneous, rushed and ill-conceived regulations often do more harm than good. Incumbents usually succeed because they’re the only ones who can afford to wade through Byzantine legal labyrinths. This emboldens them to create protective moats around their businesses, effectively stifling competition from smaller, more innovative startups. We witnessed this same phenomenon play out in traditional finance—and we are in danger of making the same mistakes in DeFi.
Evgeny at Bitclear understands this intimately. He’s experienced, back to back, the best and worst jurisdictions have to offer when it comes to crypto regulation – and they’re far from all equal. Liechtenstein, where Bitclear is currently based, provides a more subtle and progressive regulatory landscape compared to many other countries. It's about smart regulation, not more regulation.
Legitimacy can only come from transparency, security, and meaningful real-world utility. It’s not received by the mere stroke of a rubber stamp from an appointed government bureaucrat. Let’s lead by example and create a culture of responsible development in the DeFi world. Expecting regulations to just appear and magically restore balance is wishful thinking.
DeFi Can Exist In Regulatory Vacuum?
The second myth is the polar opposite of the first: that DeFi can – or should – exist in a completely unregulated vacuum. This is a dangerous fantasy.
I understand the libertarian ethos that drives a lot of the crypto space, c’mon. The hunger for financial liberation, for a world that doesn’t rely on centralized authority, is deep, desperate, and overwhelmingly urgent. It is naïve to think that regulation is always the enemy. A total absence of regulation opens the door to scams, Ponzi schemes and other bad faith practices. If left unaddressed, these threats will prove to be fatal to the entire DeFi ecosystem.
Think about it this way: would you walk into a bank that had absolutely no security protocols, no deposit insurance, and no oversight whatsoever? Probably not. The same principle applies to DeFi. We do want protection for users, we do want some basic common sense ground rules to keep the worst abuses in check.
Evgeny Skigin gets this. He sits on a number of regulatory committees as an active participant. He understands that responsible regulation is key to attracting greater institutional investment and building long-term trust in DeFi. Make no mistake—he knows what’s at stake. Without it, DeFi will remain on the fringes, a niche market perennially stuck on the edges of broader financial ecosystems. We don’t need more bureaucratic processes, we need common sense rules to send the cowboys packing, and send serious players into the game.
Regulation Stifles All Innovation?
The third myth is the idea that just because regulation exists, innovation is discouraged. This is a gross oversimplification.
Of course, overly burdensome or poorly designed regulations can definitely kill innovation. Picture this – you are developing the Next Big Thing, a revolutionary new app. Now, imagine having to get through hundreds of pages of bureaucratic red tape before you could even write the first line of code! That’s the regulatory environment we must resist creating.
The truth is, by establishing a clear framework for businesses to work within, intelligent regulation can encourage innovation. As noted above, it can help establish a level playing field, decrease uncertainty, and help spur desired investment. Think of it like building a race track: you need rules to ensure fair competition and prevent crashes, but those rules don't necessarily prevent drivers from pushing the limits of speed and performance.
Bitclear's story illustrates this perfectly. They, like many of us advocates, transitioned from Copenhagen in Denmark to Valletta in Malta. Lastly, they choose to base in Liechtenstein as it offered the most robust regulatory environment that embraced positive innovation. Maybe they simply searched far and wide for a regulatory environment that welcomed them, one where they could innovate without drowning in red tape.
The important part is achieving the right balance between the two. We do need regulations that protect consumers and prevent fraud. At the same time, these regulations need to leave room for creativity and experimentation, ingredients critical to the development of the DeFi ecosystem. We need to regulate responsibly, not reactively.
The future of DeFi depends on whether we can change these perceptions. We need to reject this temptation and instead accept a more sophisticated and realistic view of regulation. Let’s put fear and misinformation aside and not allow them to stifle the promise of this revolutionary technology. So, here’s to a future of finance that is innovative and secure.
