0/ A thread on "Open Finance" post the @ShapeShift_io news yesterday. It seems like more and more people are holding onto the idea that $ETH will empower an era of Open Finance as the decentralized world computer vision hasn't quite worked as anticipated.
1/ Unfortunately this idea has been coined by a bunch of technologists that have never spent a day on Wall Street or in traditional Finance. The Finance Industry is the most regulated globally and for good reason. Let's take the US as a prime example.
2/ The Pentagon believes they have 2 main weapons at their disposal: 1) The most impressive weapon system globally (both offensive & defensive) and 2) The ability to cripple countries by issuing sanctions as the USD is the global reserve currency (for now).
3/ This won't stop without a fight. As it pertains to the hope around DEX's &securities trading on ETH it won't happen. None of this is compliant with the '33 / '34 act which have barely changed in the 85 years since they were written outside of the evolution of trading platforms
4/ Securities cannot be bearer instruments. They need unique identifiers. There needs to be real world legal recourse. The trade life cycle still needs to occur w/ the process of clearing & settling. Unfortunately as it's written today no that can't happen "atomically"
5/ Pivoting back towards Shapeshift & @ErikVoorhees announcement yesterday which clearly wasn't under his own volition. The Bank Secrecy Act was enacted by Congress in 1970 requiring financial institutions to facilitate in the detection of money laundering.
6/ This goes back to view that the US gov't views the USD as both an economic & political weapon. As early as 2011 FinCen claimed to have jurisdiction over virtual currencies while addressing their stance several times since then.
7/ Erik is a public figure. A violation of the BSA includes jail time. What about illegal security issuance's? People like to think that's a victimless crime repayable with appraisal rights. Not so. When the SEC raids you (and they can do so with limited evidence) it's not
8/ a bunch of DC folks in suits. They are hand in hand with the FBI guns drawn, ravaging through computers, file cabinets, storage devices, etc... Any team member associated with a "decentralized application" whether in the fundraising or development will be held liable
9/ this means @willwarren89 of @0xProject or @ovedm606 of @airswap and their teams will be required to implement KYC/AML to the extent their respective protocols ever gain enough traction to warrant regulator attention.
10/ But how can they stop a "decentralized exchange?" Well the developers, their offices, and relayers built on top that have also raised rounds of capital are a great place to start.
11/ The common retort to all of the above is this is a very US centric viewpoint and if the US takes such a draconian stance then they will lose out on innovation to the rest of the world.
12/ Those people haven't been following macro economics as of late. Look at what China does to try to enforce some semblance of capital control. Same with Russia and other parts of Asia. The EU can't figure out what to do with the Euro which is in the midst of it's own criss
13/ Countries ex-US have much less clear financial laws. And sure there may be some regulatory arbitrage at play in areas such as Malta or the Seychelles but to get to the masses you'll need to find a way to comply with existing law as they slowly evolve.
14/ What will work? Where there are efficiencies to be gained by leveraging blockchain technology as it pertains to financial market infrastructure there isn't a need for sovereign grade censorship resistance with global consensus. In fact as alluded to above it's a hindrance
15/ Private permissioned chains w/ nodes for regulators to plug into & verified participants will capture the greatest share of these markets because the greatest pools of capital (hedge funds mutual funds, pension funds, endowments, retirement accounts) need to oblige by the law
