Astra Protocol, which aims to provide the decentralized finance (DeFi) ecosystem with a comprehensive legal layer while tapping into the future growth of the sector, states that operating within DeFi comes with “unpredictability” but also provides attractive opportunities. Some of the potential benefits of the underlying technology also provide certain challenges that need to be solved.
The Astra Protocol team notes that they “uniquely” offer a way for decentralized organizations to adhere to applicable rules and regulatory guidelines globally, while also allowing platforms to remain sufficiently decentralized. At an important time for the crypto and blockchain space, Astra aims to provide much-needed certainty.
The protocol’s developers explain that DeFi platforms provide substantially greater yields compared to more conventional financial platforms, which makes them quite appealing to many users.
Approximately 11% of young US consumers invested their stimulus checks into crypto-assets, the Astra Procol team notes while adding that this indicates just how prevalent the tech is becoming. Innovative as DeFI might be, the world of digital currencies is still in its early stage of development, the Astra team writes in its blog post.
Regulators Will Be Increasing Scrutiny of Non-Compliant Crypto Projects
With the rising popularity of DeFi comes a considerable increase in hacks, exploits, and other types of illicit activity, which regulators are eager to address. Regulatory agencies are currently attempting to crack down on projects that are violating rules or engaging in fraudulent activities.
On August 10, 2021, the crypto-assets derivatives exchange, BitMEX, had been ordered to pay a hefty $100 million in a civil monetary penalty. Acting Director of Enforcement at the US Commodities Futures Trading Commission (CFTC), Vincent McGonagle, stated: “Cryptocurrency trading platforms conducting business in the U.S. must obtain the appropriate registration and must implement robust Know-Your-Customer and Anti-Money Laundering procedures.”
If they do not follow applicable regulatory guidelines, then they’ll have to face the consequences, regulatory authorities have warned.
In order to ensure compliance, Astra provides a “fully” decentralized platform that carries out the necessary AML, KYC, and other applicable compliance checks on behalf of lending and borrowing apps and various other DeFi platforms.
During a speech delivered at the European Parliament Committee on Economic and Monetary Affairs, Chair of the US Securities and Exchange Commission (SEC) Gary Gensler remarked: “absent clear investor protection obligations on these platforms, the investing public is left vulnerable. Unfortunately, this asset class has been rife with fraud, scams, and abuse in certain applications.”
Gensler added that for people looking to support innovations in the crypto and blockchain space, he’d like to point out that financial innovations throughout history don’t last for too long when they’re operating largely outside of established public policy frameworks.
Gensler further noted that in finance, that’s mostly about ensuring investor protection and making sure consumers are safe. He also pointed out the rules are needed for “guarding against illicit activity, and ensuring financial stability.”
Compliant DeFi Platforms Should Drive Industry Forward
It seems now that the message is quite clear: by adhering to the relevant rules and regulatory guidelines established for financial institutions, DeFi could potentially become a secure yet highly-profitable environment for everyone.
But the main challenge of ensuring compliance in a decentralized manner is still quite a significant goal. Fortunately, however, the Astra Protocol can help in this area by providing their fully decentralized platform that conducts the standard KYC, AML, and other compliance checks on behalf of lending and borrowing apps as well as other DeFi protocols.
The firm’s tech enables decentralized organizations to adhere to applicable rules established by the SEC and various other regulatory agencies across the globe. This can be achieved without having to compromise on decentralization, the Astra Protocol team claims.
They added that they plan to create a financial world that “protects investors and consumers, enabling innovative platforms to flourish.”