Topic: Regulating Decentralized Exchanges: Is it possible? (Read 290 times)

DEX cannot be regulated because you cannot have control over them. You may bring down dex platforms like uniswap but its only the interface as no money is being stored there. You can come up with another front end site if that happens. It will be difficult to completely control the dex platforms.

Regulation and decentralization can't co-exists, if a decentralized exchange get regulated then it's no more a decentralized exchange I believe

All business structures of any form of ownership registered on the territory of a certain state, even if they claim to be representatives of extraterrestrial civilizations and have nothing to do with planet Earth, will be regulated by the relevant authorities of this state. The state must be sure that this organization does not conduct subversive activities, observes the laws of the state and pays taxes. Therefore, everything decentralized will be checked and organizationally regulated all the same.
To get away from this, there are free economic zones, there are offshore companies, where you can do anything for a small fee, so long as it does not look criminal outwardly.

Decentralized exchanges are the one that can't be regulated, it's really that simple. Popularity of Bitcoin stands on the fact that its decentralized and can't be regulated. Many decentralized exchanges are popular because they can't be regulated.

Help me understand this, In all this if the government got to the creator does this mean he or she has the kill switch to put the decentralized exchange offline, and who knows what...users could lose millions of dollars worth of crypto locked on the exchange?? If this turns out to be true then the belief of a DEX being out of the reach of one entity would be the biggest joke !!! But seeing etherdelta technically still online...now forkdelta then no one person can have full control of a DEX...

I think It's quite tough to regulating decentralized exchange. And one more thing i never use etherdelta because i already got lots of negative ratings on this exchange. That is why i never use it. I don't think soo they are legitmate worker and they are not the real dex. Because they stole funds from our account.  That means they can regulate our account. But according to dex it is anomoyous that means no can can know you and no kne can regulate you. But for etherdelta it is not. Its my opinion about this topic. Now what about your thought.

That would be a major challenge governments will face to have in the long run. The fact that they want to regulate crypto so badly, tells us that they're desperate to collect taxes. And something they can't control like a decentralized exchange, will make them furious. I can't imagine what strategy governments will come up with to "catch" the creator of a decentralized exchange. The US government was successful in penalizing EtherDelta's founder because his identity was public. But what if it was all the other way around? Then it would've been impossible to find him. Regulations can only be enforced in a centralized environment. When governments try to regulate something that's decentralized, they'll eventually fail because there's no single point of failure. A distributed network is outside the jurisdiction of a single government. I doubt governments will be successful at enforcing regulations on decentralized exchanges in the future.

Nonetheless, time will tell us whenever decentralized exchanges will live up to their name or not. Only truly-decentralized exchanges will stand the test of time. My guess is that Block DX and Atomic Swaps will be immune to regulations because of their truly-decentralized design. People will be able to trade from one crypto to another without the need for KYC. It'll be the future of crypto/Blockchain tech as governments begin to crackdown on centralized exchanges. At least, crypto's vision of "banking for the unbanked" will be realized. And that's what truly matters. Just my thoughts



Thanks for sharing. We definitely need more decentralized solutions to maintain crypto/Blockchain tech as censorship-resistant as possible. The new QORTAL DEX seems promising. But the lack of liquidity could harm its adoption in the mainstream world. At least, it's better something than nothing.

Speaking of p2p technology and cross chain atomic swaps
have you checked this project named QORTAL
https://bitcointalksearch.org/topic/qortal-blockchain-project-decentralized-websites-now-live-5258519

This can run on a rasberyPI at your home.
No more bulshit KYC/AML and exchane hacks because you own your keys.

Remeber NOT YOUR KEYS NOT YOUR COINS.

So the real problem is finding the identity of the founder you don't really know? Then I want to ask what the government is doing when an exchange is big? Is this just a government strategy to tax the exchange founders or something?
it seems that this could be one of the reasons why decentralization regulations should exist. but there may be a positive side to decentralization

There really isn't any decentralized exchange except for those which don't rely on a central server to work as intended. DEXs which are software-based and rely only on Blockchain tech, are the ones that will be able to stand the test of time. I'm talking about DEXs like Block DX and atomicDEX (this last one makes use of atomic swaps technology). Enforcing regulations on such exchanges is impossible, because they live on various computers spread around the world. No single government has jurisdiction in every country worldwide. While ETH-based DEXs live on the ETH blockchain, most of them (if not all) are hosted on centralized servers linked to centralized domains. Governments could easily take down the server the ETH DEX is hosted into, putting an end to them once and for all. While it'll still be possible to interact with an ETH-based DEX without a web interface, not many people are tech-savvy enough to do this.

Nonetheless, I believe that truly-decentralized exchanges will be able to go above the law. Once governments realize that their efforts to tackle such exchanges are in vain, they'll declare DEXs as "illegal". People that are caught trading on a DEX could face either fines or jail time. While truly-decentralized exchanges will still exist, their level of adoption will be extremely low as most people will be afraid of breaking the law. Who knows what holds for this industry as governments continue to impose heavy-handed regulations? Just my thoughts

There were days when decentralized exchanges like IDEX were truly decentralized and we can trust them with our information. But now they are claiming themselves as DEX but have become more like a centralized exchange. Some DEX could change their terms over time, but majority of them still function in a highly decentralized manner. As you have said, there could be regulations pitching in from time to time but the XMR - BTC atomic swap could probably be a game changer of the industry when realized and when proved successful, there wouldn't be really a need for DEX in future transactions. OTOH, centralized exchanges like Binance do charge a hefty fee on its users during withdrawals and have a poor customer support for issues hence DEX could always prove to be an alternative to these highly expensive centralized exchanges.

If an exchange to function properly like Binance DEX, they should be regulating them properly so that there aren't really huge malicious transactions going through them.

Possibly the digital yuan could be a new entry to blockchain space backed by government. They are still on the initial testing but China has been spending millions on the tests so that they could be proven as a really good competitor and could possibly replace currency like Tether in future? India on the other hand, has been planning to issue Digital Rupee thereby banning cryptocurrencies which could pose a threat again, but currencies like XMR which is highly privacy centric might become the future of digital trades if bitcoin were traced back to owner on higher scales by government.

Cryptocurrency exchanges and exchangers must be registered somewhere and this will always be the territory of some state. We know that states always strive to control everything related to finance. Therefore, they consider it possible and necessary to regulate all the processes that are on their territory. However, there are territories of free economic zones, offshore zones where you can get away from the regulation of states, and legal acts on the territory of different states also differ. It is not worth registering and staying in the United States, then the SEC will not have any influence.

Exactly. As long as so-called "DEXs" have a centralized website domain and server, governments will be able to shut them down easily. The situation is different when a DEX is built using a separate software or P2P technology. It'll be practically impossible to censor DEXs this way. My guess is that Block DX and atomic swaps will serve as the "holy grail" of decentralized trades in the crypto/Blockchain space within the not-so-distant future. Regulations cannot be enforced on truly decentralized exchanges, because they're not subject to a single jurisdiction. They live on various nodes worldwide, leaving the middleman out of the system for good. But who knows? Governments may come up with a different strategy in order to prevent people from gaining access to the decentralized economy. As long as crypto/Blockchain tech is considered to be a threat to the existing monetary system, we'll expect constant opposition by governments worldwide.

Nonetheless, the future for decentralized exchanges is highly uncertain. Centralized exchanges are ahead of the game because people use them more than their decentralized counterparts. Governments wouldn't pay much attention to DEXs if trading activity/volume remains low. As long as centralized exchanges dominate the industry, decentralized exchanges will only become an alternative than a replacement. Regulations could stifle the growth of DEXs but not to a point where they completely disappear from the face of the Earth. Just my opinion

It is certainly possible to regulate DEXs as much as it is possible to regulate any other content on the web since you need to host a frontend somewhere, which by the way, is where the main vulnerability is located (see etherdelta hack). However the legislation is quite different across jurisdictions so, at most, a country can regulate the rules of engagement of the DEX with their residents or citizens.

Yes it's very very possible to have a regulated decentralized exchange, i have personally come across one sometimes ago. The way to do that is to have all members have a verified account with the exchange before they can connect their wallet and engage in trading operations.

First off am thinking how is that going to be possible since all trade are done from the users end! Or am I missing something here, if for some reason this happens to be a thing that could eventually happen, then it is pointless to think some exchange are decentralize, when in the true sense they are not, however, the sec could decide to investigate the owner of a dex and that can indirectly affect the exchange.

Both etherdelta, forkdelta, idex, etherflyer and the likes are never truly decentralized, any exchange claiming to be decentralized and yet, users and deposit fund before they can trade, or withdraw fund before they can see or send from their wallet is not a decentralized exchange, tell me, what happens when you deposit on coin or token to and exchange, the token or coin leaves your wallet and goes into the exchange wallet which means you are no longer in possession of the coin but the exchange is, a fully decentralized exchange is one that can handle wallet to wallet trade with absolutely no middle man in between.

When it is decentralized, how could it be regulated? I mean the whole point of being decentralized is the fact that it should not be at the control of anyone, and regulating means that it should be controlled by someone to check what is going on, and that shows us that if something is controlled it is not decentralized. This is why technically speaking it is impossible to regulate a decentralized exchange, if it is regulated that means it is not decentralized to begin with.

I do however think that SEC could still look into decentralized places, like let's say Binance smart chain is decentralized, pancakeswap in that is decentralized but that doesn't stop SEC to check into CZ and what he is doing with BSC, not that he can control it, but he will be still investigated anyway, because SEC doesn't know how decentralized finance works and they have never dealt with anything like that before so they go after the creators.

I remember this case which shocks the whole market that time, it looks like SEC is trying their best to sue every DEX in the market but failed to win in those cases. We might see some lagging on DEX when it comes to their efficiency, but I personally think that they’ll stay DEX at least those real DEX and SEC can’t do anything about it, not unless they solve the problem and sue those behind of the projects.

You guys might want to check out what Dusk is doing with their XSC standard. They have been solving exactly this problem with a first layer solution.

Its impossible, that is why it is called decentralized since its not controlled by anyone and the creator can't be responsible because the projects are transacted using smart contracts of the respective networks. If SEC wants to regulate DEX then they should ban it completely which is also useless.

SEC as usual creating mess and I don't think it will be regulated easily if they regulated Dex then Dex will lose their importance. But I know SEC is quite hard it will keep trying to make it regulate it as far as I think. Nothing is above the law If they want to regulate it they will do it to some extent in their own country.

Surely SEC might not fully regulate DEX but they can restrict there citizens to used it which IMO has same effect on regulating DEX. People should follow the law if there is so no matter how the DEX dodge while the user itself is vulnerable on centralization, that’s still a win for SEC.

this is not our problem but its their problem .
decentralized exchange are anonymous but that will be for the users of the exchange but for the founder they can choose to not become anonymous for future reference .

sure they can .
they didnt succeed of regulating etherdelta and the status of decentralize exchanges up to this point are the same decentralized but they dont go above the law .
law are above all

Actually not for all anonymous DEX makers, etherdelta is indeed a complicated case because the author is anonymous and it is impossible to find anonymous people, but from the side of the etherdelta platform it is a completely decentralized exchange and everything is managed by each user.

I do think it's possible. If they did it to etherdelta, they could do it to any dex. It is however pointless doing it and it must have been in their minds as well because people will just find a way to trade to another dex which will lead them to countless DEX that could be created a thousand times a day.

DEX are not fully dex in a situation where they could be stopped by SEC. Until the website domains and servers are accessible by authorities, it will not fully become DEX but the mobile apps of these DEX and software like Blocknet are likely harder for them to stop.

Can they do it and why they should, they know nothing about decentralization if they are going to push through with this, they will have to find a flaw first then they have to find a way to get through the system and set up regulation rules, something that is not within their reach because they only know laws and regulations but not the technology behind decentralization.

was not the main point of that lawsuit is the hosting of the dex platform rather than dex itself?
not to mention that was two and half years ago when cryptocurrency is not well accepted and banned in a few countries.
I do not see any problem for the others as long as they are running the dex in crypto friendly country. even if decentralized exchange is bound to be no restrained by the system, but as long as you are running it under place where regulation is strict. you will not be able to survive and act as it is intended to be.

Well, you have a point there and if the decentralized exchange is legitimately running decentralized exchange, it should be decentralized and no one will regulate it. If the decentralized exchange was made and not an open blockchain source, perhaps not that truly decentralized exchange. So now, how they can regulate DEX? It is impossible and that's will not work on DEXes. They can't put any institutional law such as money laundering or such search and seizure rights, and users will remain to trade anonymously.

It's quite difficult to think about the implication to regulating dex consider people trade directly from their wallet and the amount that already traded will be also coming back to their wallet.

I do think that it's possible but regulation will be quite difficult to be applied because people are calling the smartcontract to trade their tokens. The only possible thing to force the creator of dex to put verification may be
Dexs can and why not?

https://www.sec.gov/news/press-release/2018-258
This news is already 2 and a half years old
Why don't they sue Vitalik Buterin, because he is to blame for everything
I didn’t listen to SEC filed lawsuits against uniswap, balancer and other similar exchanges.

The decentralized nature of exchanges should mean that regulation isn't an option. However a lot of projects claim full decentralization buy in practice only a few  projects are fully decentralized.
Some projects are only partially decemtralized and still allows for their smart contracts to be altered.

Some time ago, the US SEC held EtherDelta's founder accountable for the listing of unregistered securities on the platform. This was surprising considering that the exchange itself is decentralized living on a network outside the control of a single entity. Everything was governed by smart contracts on the Blockchain in a fully-autonomous manner. Yet, the government agency decided to prosecute the creator of the DEX itself. This could be a serious issue for other DEXs if governments decide to crackdown on the industry.

The real issue would be finding the creator of a DEX whose identity is anonymous on the Internet. It would be impossible to enforce regulations on decentralized exchanges this way. Once the government finds that its efforts are in vain, it could deem smart contract platforms such as Ethereum and Cardano "illegal".

What are the implications of regulating decentralized exchanges? Do you think it's possible to enforce regulations on them? Can DEXs remain decentralized enough to go above the law? Your input will be greatly appreciated. Thanks in advance.