On Oct. 20, FTX CEO and Alameda Research founder Sam Bankman-Fried shared his thoughts on what he believes is needed for successful crypto regulations. However, it received backlash as the proposal went on to state centralized “solutions” for topics on sanctions on blockchain and DeFi at large.
The full draft proposal for a set of industry standards is contained in the lengthy document posted on the FTX Policy website.
Proposal For Centralized Blocklists
According to the document, Bankman-Fried states that there should be “blocklists” rather than “allowlists” for illicit financial activities. He goes on to say that transfers between “violators” should be prohibited and that regulators should keep lists of “illicit” addresses, but peer-to-peer transactions should be free as long as they do not involve sanctioned entities.
In the proposal, he stated, “Maintaining a blocklist is a good balance: prohibiting illegal transfers and freezing funds associated with financial crimes while otherwise allowing commerce.”
Regarding the recent hacking spree that has afflicted the industry, the FTX CEO suggests that the crypto industry establish blocklisting addresses carrying funds from a security breach.
He suggests formulating this by “trusted” parties adding addresses associated with security breaches to their public list of “suspicious” addresses. As a result, centralized and decentralized protocols can quickly freeze out hacking-related addresses.
There is frequently a negotiation between the hacker and the protocol when there is a security breach. Bankman-Fried also proposed a 5-5 standard for this scenario, in which the exploiter keeps 5% of the total hack or $5M, whichever is less.
The lengthy proposal additionally stated heated crypto advocates: DeFi should follow the Office of Foreign Assets Control regulations (OFAC) and that DeFi front-ends to register as a broker-dealer with regulatory organizations.
Community Outlash
The crypto community took to Twitter to criticize Banman-Fried’s centralized take, with premises completely eliminating the “decentralized” component of DeFi, reverting to a centralized economic system akin to systems in place.
Bankless founder Ryan Sean Adams was one of the first to respond, saying, “Sam. With respect. This absolutely sucks. You’re saying DeFi should be OFACed. You’re saying on-chain freeze’s should be normal. You’re saying DeFi front-ends to register as a broker-dealer. No, this is not reasonable. This would eliminate the U.S. from the crypto race.”
Patrick Collins, a Chainlink Engineer and Web3 advocate stated, “The value add of smart contracts is ‘trust minimized agreements.’ In [Bankman-Fried’s] sanctions setup, [he is] introducing a trusted entity borderline at the layer 1 level. This removes the entire value of web3.
Collins goes on to say that if web3 is an “all or nothing” technology, the response from the U.S. would be a complete ban, which would let the rest of the world move forward in a permissionless system with credible neutrality, while the United States is left behind and out of the picture. Collins called it a “MASSIVE direct hit to citizens of the U.S.”
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