Why Layer-C is the Future of Regulated DeFi (and more)

Republished from Layer-C website https://www.layer-c.com/post/making-promises-a-thing-of-the-past-the-power-of-layer-c

In the world of finance, trust has always been a critical component. But as the crypto space continues to mature, the question of trust has become even more pressing. During the ICO phase and even today, projects in the crypto space make promises about things like token vesting schedules and commitments to supporters. Unfortunately, many of these promises are not even written into the smart contracts of the tokens and are instead built on trust that can be easily broken.

This has led to a growing call for solutions that can help get these promises into code so that they can be more than just empty words. For example, here’s the crew from Bankless talking about it in their latest weekly video (at 23:56 mark)

“The reason DeFi held up was because DeFi was regulated and CeFi (centralised finance) was not”

The idea is that if these promises were encoded into smart contracts, they would be more likely to be honoured. However, even with blockchain, we still rely on trust on some elements of trust.

Enter Layer-C (https://www.layer-c.com), a solution that was built to bridge the gap between existing regulation and the lack of requirement for crypto protocols to be in line with these regulations. Even though many tokens look and act like securities, they are not subject to the same regulatory requirements as traditional securities. Layer-C changes that by providing a way to encode existing regulations into smart contract templates that other projects can then use.

But Layer-C is not just about imbuing crypto with existing regulations. The platform also provides a way to encode additional requirements, such as token vesting schedules, into smart contracts. This sets a new standard for token issuance and provides a level of certainty for investors that has not been seen in the crypto space before.

It’s not just DeFi that needs this, but CeFi too. In CeFi, we have strong regulations but when things go wrong, the common call to action is to bring in more enforcement (as seen by the latest media release from Australian Federal Treasurer Jim Chalmers, see here https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/making-crypto-safer-consumers).

These traditional methods of regulation rely on courts and arbitration to go along with enforcement and the trust that these will be deterrents to bad actors. With Layer-C, we see there’s a way for additional protection for the ecosystem and that is with code that enforces certain types of compliance (like not being able to sell a wholesale token product to a retail customer if that’s not allowed).

By encoding regulations into smart contracts, we can reduce the need for trust and increase certainty about outcomes. And, as a bonus, this approach can be applied to other areas of regulation beyond blockchain. The fact is that with DeFi we don’t have to rely only on promises and trust, code can help us too.

The founders of Layer-C recognise the irony in the current state of affairs. Crypto is often seen as a scapegoat when things go wrong, but the issues are not crypto-related. In reality, solutions like Layer-C can drive better outcomes than what we have today. As they put it, “We want to help make sure that the crypto space is not just a Wild West, but a well-regulated and trusted environment for all.”

In conclusion, Layer-C represents a new way to bring on-chain compliance to the crypto space. By encoding regulations into smart contracts, we can reduce the need for trust and increase certainty about outcomes. This represents a step forward for the crypto space and sets a new standard for token issuance.