3 - 4 minute read
Decentralized Finance (DeFi) has emerged as a revolutionary force in the financial industry, providing trustless financial services to people around the globe. However, it has also brought bad actors and illicit financial transactions that have troubled regulators worldwide. This has led to most traditional financial institutions steering clear of DeFi, which is detrimental to the long-term growth and adoption of crypto.
The solution may be the “internet financial system” (IFS). IFS combines the best of DeFi and traditional finance in one unified network. Chris Burniske first championed IFS, which is built on open crypto rails and preserves blockchain’s most important attributes, such as decentralized settlement, self-custody, transparency, and composability.
To achieve this feat, IFS must be built on top of decentralized architecture while still mapping compliance and regulatory requirements. This means adopting programmable on-chain compliance, which can handle ongoing anti-money laundering checks and differentiate between different laws by national origin. Additionally, privacy must be preserved through smart contracts that do not intake or expose personal data on an immutable blockchain.
Markus Maier, the founder and managing director of Violet, a privacy-focused DeFi platform, believes that solving regulatory and compliance concerns in a privacy-protective way will usher in a new era where the IFS delivers on DeFi’s original promises. By running all financial applications on-chain and enabling new use cases, tokenized real-world assets will be more liquid and composable, benefiting from cheaper and faster remittances.
Moreover, IFS will make finance as a whole more robust and accessible while preserving privacy. Consumers, institutions, and regulators demand more compliant, secure, and regulatory-friendly decentralized services, delivering on DeFi’s original promises.
Traders should remember that regulatory acceptance is essential to IFS’s long-term success. Engage in good faith and show policymakers solutions to illicit finance problems. Technology that stops bad actors before they enter the system will balance investor and consumer protections.
To create IFS, collaboration is essential, and the best and brightest minds from various disciplines will be needed from crypto, tech, law, policy, finance, and more. Breaking new ground and making some compromises will be necessary to deliver the future of finance.
The Bottom Line
IFS is a solution that combines the best of DeFi and traditional finance in one unified network. It must be built on top of decentralized architecture while still mapping TradFi compliance and national regulatory requirements. Thus, solving regulatory and compliance concerns in a privacy-protective way will usher in a new era where IFS delivers on DeFi’s original promises, benefitting tokenized real-world assets that are more liquid and composable, faster and cheaper remittances, and making finance as a whole more robust and accessible.
