Jack Paul 
Regulatory Challenges for Decentralized Finance
At DC Fintech Week this past week, I had the chance to moderate a discussion that really gets to the heart of what makes decentralized finance so complicated from a regulatory standpoint. We were talking about whether DeFi projects can actually be compliant with existing financial regulations, or if the two concepts are fundamentally incompatible.
It’s a question that’s been bothering me for a while now. When you build something truly decentralized, you’re essentially creating a tool that anyone can use for any purpose. But then what happens when that tool gets used for things that regulators don’t like?
The Developer Liability Question
We’ve already seen this play out in real cases. The Tornado Cash developers, Roman Storm and Alexey Pertsev, are facing criminal charges related to how their privacy tool was used. I’m not here to comment on the specifics of their cases, but it does raise this broader question: How much responsibility should developers have for how their creations are used?
During our panel, I spoke with Maha El Dimachki from the BIS Innovation Hub’s Singapore Centre, Yaya Fanusie from Aleo, and Lee Schneider from Ava Labs. What struck me was that despite coming from different backgrounds, they all seemed to agree that developers could build certain compliance features into their projects.
But here’s the catch – we need to figure out what “compliance” actually means in this context.
Finding Common Ground
Fanusie had an interesting take. He suggested thinking about it more as “risk management” rather than strict compliance. Developers should consider what problems they might encounter – money laundering being the obvious one – and build accordingly.
Schneider pointed out something that I think gets overlooked sometimes. Both developers and regulators want users to be safe and not lose their money. That’s actually common ground, even if the approaches differ.
El Dimachki, who has regulatory experience from her time at the UK’s Financial Conduct Authority, talked about outcome-based policymaking. Instead of focusing on specific technical requirements, regulators could look at whether malicious activity is being prevented.
The Practical Reality
What I took away from the conversation is that there are probably ways for developers to build DeFi projects that work within regulatory frameworks. But it’s not straightforward, and the details matter a lot.
I keep thinking about the tension between decentralization and control. If developers build in compliance features, are they undermining the very principles that make DeFi valuable? On the other hand, if they don’t, are they creating systems that regulators will inevitably shut down?
It feels like we’re still in the early stages of figuring this out. The conversation at DC Fintech Week was productive, but I left with more questions than answers. Maybe that’s the nature of dealing with new technology – we’re all figuring it out as we go.
I’m curious what others think about this. How do we balance the promise of decentralized finance with the real need to prevent misuse? It’s a conversation that’s going to continue for a while, I suspect.