Embracing Regulation, Rejecting Malicious Regulation — Delving into the Importance of Decentralization through the Binance Incident
Recently, the Binance exchange assisted Israeli police in freezing around 190 Binance accounts related to Hamas, funneling all seized funds into the Israeli treasury.
Following this, Binance co-founder He Yi responded on social media regarding the incident. He Yi stated clearly that Hamas is currently a terrorist organization as defined by the United Nations, and any international organization, including banks and trading platforms, must comply when receiving freeze requests. It was not a unilateral decision by Binance. He emphasized that he holds no political stance, and no trading platform can refuse such law enforcement requests. He further explained that Hamas is an armed force in the Palestinian region, distinct from the governing authorities of Palestine, and the freeze targeted Hamas, not Palestine.
Provoking Thought and Discussion
This action by Binance has stirred widespread attention and discussion within the community. On the one hand, some understand and support Binance's action, believing that compliance with international legal requests is obligatory for every exchange. Others acknowledged the cruelty of Hamas's actions as inhumane, which is widely recognized; shouldn't such an organization be banned?
On the other hand, some worry that this incident might contradict the core principles of blockchain technology — decentralization and anti-censorship. "The freezing of accounts by Binance, to us users, is irrelevant to politics or stance but solely concerns the safety of our assets. Let this be a lesson to guard against unnecessary losses." "So, for your asset safety, it's better not to keep money on exchanges."
Binance's action is seen as a necessary compliance with international law. However, it also exposes the potential dilemma centralized exchanges face when dealing with politically sensitive issues. This incident touched on the principles of decentralization and anti-censorship and prompted doubts on whether centralized exchanges can provide a safe and fair trading environment.
Reflecting on a series of shocking events in 2022, including Luna in May, Three Arrows Capital in June, FTX in November, and Genesis in December, Genesis was then the best-managed, largest centralized crypto lending company, enticing funds with attractive borrowing costs. Yet why did it end up collapsing? FTX, the second-largest exchange then, went bankrupt due to a bank run. Is this why, theoretically, all centralized exchanges are unsafe? If we follow this logic, any centralized exchange poses a risk of total collapse. For those dealing with large transactions, the shift will gradually move towards DEXs based on ZK roll-up and open order books, which are permissionless, KYC-free, anti-censorship, and trustless. Isn't this exactly what crypto natives have been aspiring for? It might be time to reconsider the previous negligence of security for convenience.
The core ideology of blockchain technology is decentralization and anti-censorship, aimed at creating a trading environment that's free from single-authority control and is open and transparent. However, when exchanges heavily rely on centralized operational models, they may compromise when facing legal and political pressures, thus deviating from the original intention of blockchain.
This raises a critical question: How does today's balance embrace regulation and maintain decentralization in today's increasingly well-rounded global legal framework?
The Importance of Embracing Regulation and Rejecting Malicious Regulation
In the global financial market, regulation is not only necessary, but it’s also crucial for ensuring market fairness and protecting investors ' interests. Compliance and regulation are of utmost importance, especially in the relatively new and volatile domain of cryptocurrencies. A compliant, regulated trading platform can provide a relatively safe, transparent trading environment for users, reducing the likelihood of fraud and injustice and protecting the legal rights of investors.
However, the purpose of regulation should be to preserve market fairness and investor rights, not to become a tool for specific forces to manipulate the market, infringe user rights, or provide a facade for centralized entities to engage in malpractices. Regulation can serve specific political and interest groups when it becomes opaque and unfair. This form of “Malicious Regulation” is what we must reject.
The transparent "cy brought about by "decentralized technologies and platforms can, to some extent, prevent the occurrence of “Malicious Regulation,” protecting user rights from unjust regulation.
Anti-Censors"ip Decentralized Exchanges Could be a Trend.
Prompted by the Binance incident, many ponder whether anti-censorship decentralized exchanges are the way forward. The core value of blockchain technology lies in its decentralization and anti-censorship features, offering users an open, transparent, and safe trading and asset management environment. However, with the rapid development of cryptocurrency exchanges, centralized exchanges have been widely welcomed due to their efficiency and convenience. Yet, the Binance incident has exposed centralized exchanges' potential downsides and risks, especially when exchanges have sensitive and legal issues.
Decentralized exchanges can significantly secure user assets and transactions as a single centralized entity does not control them but operates through a distributed network. This ensures that user assets and transaction data cannot be arbitrarily altered or deleted under any circumstances.
More importantly, in decentralized exchanges, users have complete control over their private keys and assets, aligning with the core blockchain philosophy of “Not your keys, not your coins.”
Rejecting “False Decentralization”
However, even in the realm of decentralized exchanges, there are so-called “false decentralized” projects. Although these projects claim to have achieved decentralization, they still have admin keys, allowing access and control over any account within the system. The admin key enables specific entities (individuals, companies, DAO organizations, etc.) to have management rights over the entire system, including control over accounts, permissions, data, etc.
For “centralized” projects with admin keys, facing the risk of government regulations is a broad open issue. Regulatory bodies can sometimes shut down and control a project with admin keys. DeFi projects that centralize “custody” control over users and their funds face pressures, "special"y in legal terms. If regulators can pinpoint a centralized party or group, they can seize that.
So, what does the no-admin key imply? It means that all operations and rules are executed by smart contracts and the decentralized network, with no individual entity capable of intervention, thereby raising the bar against malicious actions. “No-Admin key” provides greater security and credibility, as "o single ent" ty can abuse power or perform improper actions.
Of the 15 projects reviewed on DeFi Watch, only InstaDapp, MakerDAO, and Uniswap reported no associated admin keys with their products. The remaining projects (including Aave, Compound, DDEX, Yearn Finance, Nexus Mutual, and Synthetix) have admin keys allowing varying degrees of control.
Do Anti-Censorship + Decentralized Transparent Exchanges Exist?
With a series of centralized exchange collapses and “Malicious Regulation” incidents, the blockchain industry is genuinely decentralized, not pseudo-centralized, anti-censorship exchanges.
A new type of exchange emerged in the blockchain industry — Transparent Exchange. It makes the entire trading process entirely transparent and public, with all data on-chain accessible for querying and supervision by everyone. Transparency facilitates regulation by regulatory bodies and allows everyone to supervise, thereby raising the cost of malicious actions by exchanges, significantly reducing the likelihood of such misconduct, and ensuring safety and fairness through transparency.
In terms of security, Transparent Exchanges (TEXs) achieve true decentralization, allowing users to manage their assets independently. The exchange has no admin keys, and control is exerted through AA contracts. AA contracts can directly remove admin keys, ensuring the platform’s decentralization and anti-censorship attributes.
Iplatform'sed that Transparent Exchanges (TEXs) retain the state's transparency and anti-censorship features of decentralized exchanges and offer the web 2.0 experience of centralized exchanges.
Future Prospects
The Binance incident provides a profound lesson, highlighting the potential drawbacks of centralized exchanges. As global legal regulation tightens, it’s imperative to embrace regulation while striving to preserve and promote the core values of blockchain technology. The blockchain world is diverse and inclusive, needing compliance, regulation, decentralization, and freedom. Blockchain technology can be better developed and applied only by finding a reasonable balance between these.
The advent of Transparent Exchanges (TEXs) represents our expectations and exploration toward a more fair, open, safe, and convenient future of cryptocurrency trading. Transparent Exchanges (TEXs) might provide users with a genuinely safe, transparent, efficient, and timely trading platform, enabling everyone to reap the benefits of blockchain technology.
In conclusion, the Transparent Exchange (TEXs) signifies a step toward a more secure and equitable trading platform, aligning with the fundamental ethos of blockchain technology. This innovation hints at a bright future where every individual can enjoy the dividends of blockchain technology while ensuring a fair and safe trading environment.
