Crypto projects walking the tightrope with regulatory regulations

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Crypto projects walking the tightrope with regulatory regulations

It would seem like an unlikely buzzword at ETHDenver, one of Ethereum's largest conferences, set exactly in the heart of the city.

As developers and founders have come to terms with the idea that crypto projects must adhere to rules and regulations to survive, they've developed a warmed up toward the idea that crypto projects will need to adhere to rules and regulations to survive.

At least seven projects participating in the event were directly involved in compliance solutions, with at least five presentations addressing policy and regulation issues.

A former lawyer in the startup and venture capital field who is building a compliance solution called Lexproof, Orlando Cosme said at the conference a change in attitude toward regulation.

Cosme named the know-your-customer process and accredited investor verification as examples of traditional financial designations that may need to be more fully accounted for in the crypto space.

It's clear that, despite numerous regulatory actions against crypto, compliance has moved from a betrayal of crypto's self-regulating ethos to something closer to a value proposition.

And it makes sense - many in the crypto industry are on edge after the US's Securities and Exchange Commission accused the stablecoin UST and its sister token LUNA of securities.

Some bet early on tackling the tough compliance issues say their work is paying off.

s f*cking hard to bring things from the real world in a legally compliant way on-chain, said Maex Ament, co-founder and current board member of Centrifuge, a project built to put debt products on blockchains.

The Centrifuge startup began in 2017 and is experiencing traction as the so-called'real world asset' space has shown signs of taking off - the project has facilitated over $300M in loans, according to a data dashboard by RWA.xyz.

According to the project's documentation, creating a loan using Centrifuge necessitates creating a Special Purpose Vehicle, an independent legal entity. A KYC and anti-money laundering process can be completed for those looking to invest in the financing opportunities.

Centrifuge also did a traditional equity round 2017 to raise money, Ament said. That was a time when the dominant funding mechanism for crypto was an initial coin offerings, a simple process where investors sent a significant crypto asset like ETH to a project in exchange for its tokens.

Some ICOs may be securities offerings, the SEC's website states.

Yug Network, kycDAO, and Yug Network are among other projects involved in regulatory compliance at ETHDenver that are working to bring off-chain credentials like KYC, on-chain. Some, such as Opolis, are focused on enabling crypto's swath of freelancers to remain or become tax-compliant.

Ament said the team did not think it could fight the regulatory battle around ICOs. Despite the traditional rise, Centrifuge is deep into the decentralization process and is giving control of its platform over to token holders, Ament said.

David Liebowitz, who hosts a podcast called Flywheel DeFi, thinks that stablecoins are the most important area to watch in terms of regulation in the digital asset sector.

Lexproof's Cosme, also in London, said that the stablecoin space had a higher chance of seeing new legislation drafted into law, rather than the digital asset industry as a whole.

Cosme isn't optimistic that the United States' legislative branch will pass new laws for the digital asset industry in the near future. Cosme, however, said that given the legislative body's current constituents, it is unlikely to push forward any laws of the sort.

Both Liebowitz and Cosme acknowledge the SEC's aggressive stance taken in regards to the crypto space, and Cosme said that the general outlook among lawyers is that the federal agency isn't going to let up anytime soon.

If ETHDenver is an accurate barometer, the crypto industry is adapting to a more adversarial regulatory environment - and some are even looking to build products for it.