In the wake of an Oct. 30 blacklisting of New York IP addresses, decentralized asset exchange IDEX says it will implement anti-money-laundering (AML) policies and IP surveillance moving forward, according to a Medium post written yesterday by CEO Alex Wearn.
Wearn said that decentralization exists on a spectrum, not a binary, and in order to move forward, IDEX will have to give regulators and policy-makers tools to prevent illegal activities and violations of money laundering laws.
The IDEX exchange is one of the applications of the Aurora project, a suite of Ethereum protocols designed to decentralize the world of banking and finance. IDEX is non-custodial, which means that IDEX never has custody of user funds. IDEX uses a smart contract that connects makers (sellers) to takers (buyers) and executes trades accordingly. IDEX only confirms whether or not both parties have sufficient funds to buy and sell.
Because IDEX enforces its own protocol to enact trades, Wearn said that IDEX is legally obligated to comply with particular laws pertaining to money transfer and trade execution.
“Decentralization exists on a spectrum, and unless your system or application lacks any centralized parts, it can be subject to regulation,” Wearn stated.
He added that while IDEX plans on implementing AML and know-your-customer (KYC) policies, Aurora’s goal is to create a fully-decentralized financial system, but the road to decentralization requires a certain degree of control.
Wearn went on to criticize what he calls a misuse of the word decentralization. He said decentralization is a complicated and multi-faceted concept whose meaning has been degraded by an almost unchecked absolutist discourse. Wearn added that the concept of decentralization demands specifics, not just broad labeling.
Wearn said that a decentralized exchange should be non-custodial, censorship-resistant, transparent, and auditable, and that’s what IDEX aims to do moving forward. He added that IDEX’s belief is and always has been “pragmatic decentralization,” working with regulators to advance the exchange to bring liquidity to more customers as quickly as possible.
Critics say that IDEX’s compliance with regulators erodes decentralization and tarnishes the very ethos of cryptocurrency. They say that by implementing KYC and AML policies, IDEX will become nothing more than the very institutions it was designed to replace.
Still, Wearn said he thinks these new policies will instead allow IDEX to challenge the way these institutions function.
“In our view, the endgame of decentralization is not about zero compliance, it’s about setting a new standard of governance,” Wearn said.