April 29, 2023
Decentralized Finance, DeFi, has a primary benefit that it does not require a custodial third party. This means investors retain full control of their assets at all times. First of all, this means there is no central authority that it would make sense to regulate, but it also means that assets are significantly safer than they would be in traditional investment institutions, which do require a custodial entity to take control of an investors assets. For this reason, it does not make sense to regulate most DeFi tooling in the same way that a traditional exchange must be regulated.
There do exist centralized entities in the DeFi space that would make sense to regulate, but the most highly reputable projects are the ones where central control is completely absent, and investors retain full control of their assets at all times.
There should be rules in DeFi, and most rules that would be enforced by regulators can be codified directly into the smart contracts themselves, so they are impossible to violate, even if someone wanted to. There are significant advantages to these systems, so it's important to embrace the benefits, which can be done at the same time as ensuring investor safety.