Why Regulation Can Be a Powerful Ally and CeFi – a Bridge Between DeFi and Regulators

3 min read
  • CeFi companies with traditional licenses can act as a bridge between regulators and DeFi
  • Until regulation catches up, self-regulation is a key working solution
  • Nexo welcomes a constructive dialogue with all key stakeholders of the regulatory process

There have been serious indications over the past few months, if not years, that a deeper governmental emphasis on crypto is imminent. Officials have been turning up in droves to discuss cryptocurrencies, and rightly so because an asset class surpassing $2T in market capitalization is simply too big to escape the prying eyes of regulators. Now that there are enough signs of a rapprochement between regulators and crypto-native businesses, it’s important to make it clear once and for all that we as an industry want to be fully engaged as well as legally represented as the space evolves and adjusts to prove its anti-fragility.

Read our Co-founder and Managing Partner Antoni Trenchev’s deeper dive into the topic in his latest piece for Cointelegraph.

Compliance and Self-regulation at Nexo

We must do our bit to protect crypto – the only truly free market left. At Nexo, we believe that the right kind of regulation can be a powerful ally and that our collaboration and continuous dialogue will foster innovation and propel the space into the mainstream. This is especially true for companies that have already introduced self-regulatory elements and are following a traditional licensing route. Nexo is one of these companies with multiple traditional licenses across jurisdictions, as a result of our three-year license acquisition spree. As such, we can act as a bridge between regulators and the traditional financial industry on the one hand, and decentralized finance (DeFi) protocols on the other, allowing the latter to piggyback on our infrastructure which includes but is not limited to:

  • Turn-key solutions for know-your-customer (KYC), anti-money laundering (AML), and counter-terrorist financing (CTF) policies that adhere to the global standards of the Financial Action Task Force (FATF).
  • Screening of all incoming cryptocurrency transactions and outgoing wallets via the tools that the CIA, FBI, and IRS, among many others, have been using to identify the flow of funds via clear paper trails.
  • Successful crypto on- and off-ramps, whose creation has proven to be challenging for the space historically.

Undoubtedly, the next tech giant will come out of the crypto space but we don’t see that as a competition with either regulators or decentralized businesses. We have followed the path of acquiring the same licenses as consumer credit lenders, as money transmitters, and even federally chartered banks and it’s a time-consuming and costly journey, so we are lending a helping hand.

In addition to the traditional licensing and registration process, and at least until regulation catches up, self-regulation is a satisfactory working solution and we have already made the pioneering moves in this respect. Proactively and without precedent in the crypto lending space, Nexo’s Finance team has engaged Armanino, one of the leading accounting and business consulting firms in the US, to conduct a Proof of Reserves attestation and provide real-time attestations over the company’s custodial holdings. This attestation will provide an independent, third-party confirmation expressed in US dollars that our company’s assets exceed liabilities at all times and marks the latest in our series of #NexoTransparency developments, aimed at verifying your assets are protected and stored in a compliant manner. Bringing the details of Nexo’s operations to the public has become a year-round requisite for us and we’ve already committed to monthly ask-me-anything sessions, successfully carried out our first governance proposal to allow our customers to have an active say in the financial products they want and need, and launched our public Licenses & Registrations page.

We firmly believe that regulation done with meaningful industry engagement and input from all key stakeholders is for the benefit of all involved and will foster innovation, lead to sustainable business practices and investor protection. Coupled with self-regulatory elements, it will result in clear rules, regulatory certainty, and, ultimately – more revenue for the countries that decide to embrace crypto, much like the US did with the internet in the early 2000s.

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