Following the ongoing debate around crypto regulation, Ethereum founder Vitalik Buterin joined the discussion in a series of Twitter posts over the weekend. FTX CEO Sam Bankman-Fried has been the subject of much criticism over his views on DeFi regulation. Buterin decided to share his thoughts after stating that it “feels unfair to let other people get attacked by CT but never actually poke my own head out.
Vitalik argued that the crypto industry should not be pursuing “large institutional capital at full speed” as it needs more time to mature before receiving further attention. The Ethereum founder explained that the industry must be “free to act” and a delay in mainstream adoption is healthy for the space.
“Regulation that leaves the crypto space free to act internally but makes it harder for crypto projects to reach the mainstream is much less bad than regulation that intrudes on how crypto works internally.”
However, unlike SBF, who argued that compromises might be required to keep crypto regulation free at a protocol level, Vitalik believes rules that keep crypto fully open but reduces the speed of adoption is preferable.
Regulation for front-end DeFi products requiring any form of KYC would be pointless in deterring hackers, according to Vitalik. Hackers write code to interact directly with smart contracts, so the front end of a project is usually ignored by bad actors.
Another maybe-controversial take of mine is that I don't think we should be enthusiastically pursuing large institutional capital at full speed. I'm actually kinda happy a lot of the ETFs are getting delayed. The ecosystem needs time to mature before we get even more attention.
— vitalik.eth (@VitalikButerin) October 30, 2022
The "KYC on defi frontends" idea does not seem very pointful to me: it would annoy users but do nothing against hackers. Hackers write custom code to interact with contracts already. Exchanges are clearly a much more sensible place to do the KYC, and that's happening already.
— vitalik.eth (@VitalikButerin) October 30, 2022
Vitalik also outlined some regulations that could improve DeFi.
“(i) limits on leverage
(ii) requiring transparency about what audits, FV or other security checks were done on contract code
(iii) usage gated by knowledge-based tests instead of plutocratic net-worth minimum rules”
Vitalik also suggested that regulations be compatible with “zero-knowledge proofs,” allowing rules to be enforced without human oversight. He sees ZKPs as a technological innovation that can be applied to improve regulatory practices rather than being at odds with them.
“ZKPs offer lots of new opportunities to satisfy reg policy goals and preserve privacy at the same time, and we should take advantage of this!”
SBF replied to Vitalik’s thread, articulating that the comments were “pretty reasonable.”
generally think these are pretty reasonable!
— SBF (@SBF_FTX) October 30, 2022
The Ethereum founder chose not to comment on OFAC-sanctioned blocks taking up over 60% of blocks due to MEV-boost relays. The situation is relevant to the issue of regulation as it can be argued that Ethereum is currently being regulated at the protocol level through OFAC sanctions.
Work is allegedly at hand to reduce the impact of relays that only process OFAC-compliant blocks. However, the percentage of OFAC-compliant blocks has risen to 65% from just 12% in September. Some may view it strange that in a series of comments on regulatory matters, Vitalik completely ignored the ongoing issue with relays. Perhaps he does not wish to shed more light on the subject before a solution is agreed upon.
