Erik Voorhees, the founder of Shapeshift and a prominent Bitcoin advocate, believes that decentralized finance (DeFi) has effectively addressed the issue of regulatory clarity that hinders people from possessing or trading a majority of cryptocurrencies. There is growing concern within the crypto industry that all cryptocurrencies, apart from the four listed on the newly launched EDX Markets (BTC, ETH, LTC, and BCH), could potentially face trading restrictions in the United States. The worry stems from the fact that EDX’s listing reflects regulatory sentiment and may lead to a distinction between these four cryptocurrencies and all others, labeling the latter as securities. It is worth noting that Bitcoin, Ethereum, Litecoin, and Bitcoin Cash are the only cryptocurrencies that regulators have recognized as not being securities. On the other hand, SEC chair Gary Gensler has repeatedly stated that all other cryptocurrencies are deemed securities by the regulator. The involvement of financial giants such as Citadel Securities in EDX has further fueled concerns that Americans may only be able to trade these four cryptocurrencies on exchanges controlled by Wall Street due to regulatory limitations. Despite these worries, Voorhees argues that DeFi presents a solution to this problem.
According to Voorhees, DeFi operates on a permissionless basis, which means that individuals can trade and own altcoins that are not listed on centralized exchanges by turning to decentralized protocols. DeFi protocols do not require regulatory clarity or permission to function, and governments have limited power to interfere, except by making DeFi-related transactions illegal. Voorhees emphasizes the immense power of DeFi, stating that governments can enact any laws they wish, but the protocols will continue to operate. This notion highlights the resilience and strength of DeFi in overcoming regulatory barriers.
The Fiat On-Off Ramp Challenge and Bitcoin’s Role
One of the significant drawbacks of DeFi protocols is the absence of a fiat on-off ramp through traditional banks. This means that altcoins without a fiat connection cannot be used for everyday transactions, such as purchasing groceries. To circumvent this issue, most people rely on centralized exchanges that offer on-off ramps or peer-to-peer markets for exchanging supported cryptocurrencies. In comparison to DeFi, centralized exchanges like Coinbase and Binance have limited listings, and there are concerns that these choices could be further restricted to just four cryptocurrencies. However, Voorhees argues that this limitation would not hinder DeFi protocols or altcoins. He suggests that the industry only needs a “single ramp to banking” for functionality, and this role can easily be fulfilled by Bitcoin. Currently, individuals already convert unlisted cryptocurrencies to Bitcoin, Ethereum, or stablecoins when they intend to cash out to fiat. While this practice may become more limited in the U.S., it would still be maintained. Voorhees asserts that the core purpose of Bitcoin and DeFi is to provide individuals with economic freedom of choice, and the reliance on Bitcoin as a fiat on-off ramp aligns with this objective.
The concerns surrounding regulatory restrictions on altcoins in the United States can be addressed through the power of DeFi. By leveraging decentralized protocols, individuals can trade and own altcoins that are not listed on centralized exchanges. Despite the lack of a fiat on-off ramp in DeFi, Voorhees suggests that Bitcoin can serve as the single ramp to banking, ensuring functionality for the industry. The essence of Bitcoin and DeFi lies in empowering individuals with economic freedom, and the industry’s concerted effort to embrace DeFi can pave the way for altcoins to thrive in the face of regulatory challenges.