Why Stablecoin Blacklisting Is Harmful to DeFi
From | Decrypto, compiled | PANews
Recently, the issuer of the centralized stablecoin USDC blacklisted an address. What does this practice mean for cryptocurrencies, especially the currently booming DeFi industry?
In mid-March 2020, the new crown virus epidemic caused the cryptocurrency market to almost collapse, and the decentralized stable currency DAI was also deeply affected. Therefore, the MakerDAO community decided to introduce the stable currency USDC linked to the US dollar as collateral. However, what is unexpected is that CENTRE Consortium, the centralized issuer behind USDC, suddenly blacklisted an address recently, and froze stablecoins worth $100,000 on the address at the request of U.S. law enforcement agencies.
According to the spokesperson of Circle, they were unable to provide any details about the blacklist. The relevant freezing operation was carried out in mid-June this year, and this address was blacklisted for the first time. According to a statement issued by Circle, CENTER Consortium can confirm whether certain addresses are blacklisted according to the requirements of law enforcement agencies, but they cannot comment on the specific details of law enforcement requests, and can only implement binding court orders with appropriate jurisdiction (currently It is unclear who actually owns the address).
It is now certain that when a USDC address is blacklisted, it will no longer be able to receive USDC tokens, and all USDC tokens controlled by that address will be blocked and cannot be transferred on-chain.
Suddenly, we found that MakerDAO's DAI did not seem to be as "decentralized" as the legend said.
Stani Kulechov, CEO of DeFi lending protocol Aave, said:
"Imagine if USDC is currently placed in the Maker Vault, what might happen is that the CENTER Consortium uses the blacklist function to lock the funds in the Vault, thus destroying the peg between DAI and the US dollar."
(PANews Note: Maker Vault is MakerDAO’s custodial exchange service, and users put cryptocurrency into it to generate DAI tokens.)
Some people in the industry believe that although DAI, as a dollar-linked stablecoin, can well withstand the impact of financial risks, if the collateral can be blacklisted, it means that the bottom layer of the DeFi protocol may be affected and destroyed.
Why is CENTER Consortium blacklisting addresses?
Crypto companies, while operating in an unregulated environment, still need to abide by the law, and the CENTER Consortium is no exception. Compound General Counsel Jake Chervinsky tweeted:
"In the past, people always thought that USDC addresses were added to the blacklist as "just talk", but now this matter has become a reality, and it has therefore brought real risks to the DeFi industry."
CENTER Consortium, a joint project of cryptocurrency exchange Coinbase and payment company Circle, and the issuer of USDC tokens, is said to be unable to comment on the specific details of law enforcement requests.
However, according to the analysis of Phillipe Castonguay, a blockchain software development company, although this is the first time that USDC issuers have encountered a "blacklist crisis", they are not the first in the encryption industry. As the largest dollar-anchored stablecoin in the crypto market, Tether has blacklisted 39 Ethereum addresses since November 2017, involving millions of dollars.
Both CENTER Consortium and Tether are actually centralized companies. As a result, they both chose to cooperate with law enforcement agencies and unilaterally blocked related transactions-this runs counter to the principles of decentralization advocated by cryptocurrency believers.
However, CENTER Consortium's policy document shows that failure to do so will pose a threat to the USDC network, so it is necessary to comply with the US court order to blacklist the relevant addresses, and they also wrote in the document: "CENTER Consortium still reserves The right to block transfers of USDC tokens."
Komodo CTO Kadan Stadelmann said:
secondary title
The centralization problem of DeFi
Michel Anderson (Michael Anderson) is from Framework Ventures, a DeFi venture capital fund. He believes that there is still a centralization problem in the DeFi industry, which is why he has not invested in DAI so far. Michelle Anderson explained:
“The problem is obvious, if the stablecoin issuer is a centralized entity, then they can do anything, block transactions, freeze assets, etc.”
Michelle Anderson, who currently invests in Synthetix, believes that Synthetix's power is more decentralized, and there are some other decentralized stablecoins that also claim to be outside the control of the issuer.
Komodo CTO Kadan Stadelman concluded by saying:
“If I had to draw conclusions, I think the whole thing highlights that the demand for Bitcoin continues to grow globally. Of course, Bitcoin is still volatile and does not perform well as a savings vehicle. But at the end of the day , if you want to choose an indivisible, unstoppable best value transfer tool, Bitcoin is still the first choice.”
Of course, the premise is that you do not trade on a centralized exchange.
