Decentralize Everything - The Daily Gwei #340

It's time to stop messing around.

The SEC has been making lots of enforcement-related moves lately and current chairman Gary Gensler has been pretty upfront about the fact that more regulation is coming very soon. Of course, the crypto ecosystem is fighting back in various ways (bribing - er sorry - lobbying, making our voices heard to representatives, teams moving to friendlier jurisdictions etc) but I believe there is really only one thing we need to do - we need to decentralize everything.

Regulators are always going to go after the lowest hanging fruit that gives them the highest “return on investment” and currently that’s centralized exchanges, stablecoins, and the centralized companies building crypto applications. They’re spot on in taking this approach because if they are able to clamp down hard on both CEXs and stablecoins, they can basically kill off 90%+ of DeFi activity (at least, in the short-term). I’m a bit more optimistic here in thinking that they won’t end up clamping down too hard on the industry but we should not be building systems based on the optimistic case - we should be building them based on the worst case.

The funny thing is that I think all of this regulatory action is actually just going to force existing teams to fully decentralize their apps much quicker than planned and force new teams to launch their “companies” in a decentralized way from the very start. Though I’m not just talking about decentralizing by becoming a DAO and issuing a token, I’m also talking decentralizing the entire stack. The team, the front-ends, the supporting infrastructure - all of it needs to be as decentralized as possible to resist any adverse regulations and law enforcement action. We also need to address the biggest pain points - centralized exchanges and stablecoins - by building decentralized alternatives. Of course, the former is a large pain-point because there isn’t really a great way to do decentralized fiat on/off ramping (even LocalBitcoin was forced to implement KYC) but there are plenty of projects tackling the decentralized stablecoin space (and racing towards that holy grail).

Another thing that the regulators are going to show us is which projects are actually decentralized and which ones are DINO (‘decentralized in name only’). I don’t think any of the crypto-based systems that claim to be decentralized have had to deal with a serious adversary like a regulator before - but they will very soon. Whether they are layer 1’s, layer 2’s, DeFi apps or whatever else - there will come a time when they will all face the wrath of a well-funded regulatory adversary - and they will lose if they are not truly decentralized. This is exactly why all teams should be building their systems to be as decentralized as possible from day 1.

This is really the only way the crypto ecosystems wins - we always knew that the regulators would be coming - and now it’s time to fight.

Let’s decentralize everything.

Have a great day everyone,
Anthony Sassano

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