With Russia War On The Brain, Could Congress Levy A Kill Shot To DeFi?

Earlier this month, Senator Elizabeth Warren and 10 other lawmakers introduced the “Digital Asset Sanctions Compliance Enhancement Act of 2022” which, make no mistake about it, is gunning for two things: Russia, and your Bitcoin.

It’s cryptocurrency whack-a-mole season in the Western world, with Canada shutting down Bitcoin donations to truckers protesting their country’s draconian Covid policies, and now the U.S. government trying to figure out how to stop Russia’s sanctioned individuals and corporations from using Bitcoin instead of dollars.

The Warren bill “would place sweeping restrictions on persons who build, operate, and use cryptocurrency networks even if they have no knowledge or intent to help evade sanctions.”

This bill is going nowhere. It would make life miserable for Kraken and Coinbase, though Coinbase basically said Russians (some 25,000 to be exact) were no longer welcome on their platform.

Russia already appears to be paving the way to using cryptocurrencies to repatriate assets held abroad.

Last week, Russia’s central bank authorized its largest consumer bank, Sberbank, to use digital assets and not just rubles. That means cryptocurrencies, Bitcoin or what-have-you. (Though probably just Bitcoin.)

So to answer the story question – will a very angry Powers-that-Be be able to stop decentralized finance? No. They might blow up Bitcoin. But think of Bitcoin as the Obi-Wan Kenobi of the cryptocurrency universe. If you strike it down, decentralized digital currencies will only grow stronger.

“The whole world will know that money is being repatriated into Russia in cryptocurrency, but since crypto is an unstoppable payment method, there’s not much they can do about it,” John Sarson, CEO and co-founder of Sarson Funds was quoted saying in Digital Wealth News on March 22.

The Central Bank of Russia’s decision to allow Sberbank to do business in crypto comes at a time when the country faces unprecedented financial market and economic sanctions, and when cryptocurrencies, obviously led by Bitcoin, pose a huge threat to central bank rollouts of their own programmable digital currencies. Russia’s central bank was no exception to the rule on this – they never liked Bitcoin. Now, as a matter of necessity, they see that when centralized powers are canceling your ability to transact, you have to go off the reservation into the decentralized universe.

Sarson, who runs a digital assets fund in Massachusetts, said the Sberbank crypto decision means Russians can now convert and hold cryptocurrencies as the country experiences a currency crisis. This enables them to stabilize their wealth, and diversify their assets. It is probably easier to buy crypto at Sberbank, for instance, than it is for Russians to stock up on Chinese yuans.

Moreover, many of these entities and individuals, forced off of fiat currencies by the decline of the Russian Ruble and international sanctions, might be reluctant to return to the ruble, said Sarson. They may decide to only convert their crypto assets back if it’s needed to make a car payment, he told DWN.

DeFi: A Moving Target

Bitcoin is the easy target. It’s like a big square warehouse in a barren field, with central bank drones zeroing in on it, wondering when they should fire the kill shot, and if that will really take it off line.

If so, there are many other coins that enable financial transactions. People can just switch to them. Defi, therefore, is a moving target. It’s not as big and sexy a trophy, but there are too many players out there to take out all at once, if at all.

One of the main concepts of DeFi is to serve the “unbanked”. We like to think of the unbanked as the poor Indian farmer making a living off wheat and millet, who cooks in a fire pit stove in a house the size of the average American teenager’s bedroom in the suburbs.

But many Russians right now are “unbanked”. They’re not poor.

Canadian truckers were temporarily unbanked.

Who’s next?

Defi is an end-around these centralized governing powers that control money. They turn off your lights, and DeFi is your power generator.

Over the last month, one of the more well-known DeFi projects, Stellar Lumens, has seen its coin value rise by 11.6% since the Russian war in Ukraine began. By contrast, the S&P 500 is up 3.6%. Bitcoin is up 13.9%. That’s nothing. The leading DeFi public blockchain protocol, Terra (LUNA), is up 51.8%.

“DeFi holds the potential to allow people who are not being served by the current system – the 5.5 billion across the world classified as underbanked – access to the new digital economy without facing the human and systemic biases of the current system such as discriminatory lending practices and policies,” says Anna Stone, director of growth at eToro and co-founder of GoodDollar, which aims to build a global universal basic income via crypto.

Decentralized finance, or DeFi as it’s popularly known, is an open infrastructure for digital money. With DeFi, every person who has an internet connection can access financial services, without jumping through the bureaucratic hoops required by traditional institutions. This includes buying, selling, borrowing, lending and saving.

Currently, centralized finance serves only banked individuals and organizations that have government-issued ID who can pass know-your-customer and anti-money laundering regulations. Plus, you need a credit history, or some real money to make opening a bank account worthwhile.

That’s not where the bulk of humanity lives. But just as importantly, in an age where people can be shut out of their banking system due to political views that do not coincide with a ruling power, being kicked out of the financial system isn’t just for warring emerging market presidents and their allies anymore.

Hence, the increased use case is building for DeFi.

But, is it worth our while?

I own Lumens. I don’t use it to make payments. But I have it. And I invest in it. Maybe one day, I will need it.

“You don’t need to understand exactly how DeFi works, or have a use case for it, to benefit from DeFi,” says Stefano Jeantet, a board member at HyperDex, an asset management platform specializing in decentralized finance tokens.

“The all-inclusive, permissionless and autonomous nature of DeFi means anybody can code a Federal Reserve and there is nobody to stop it,” says James Taylor, Chief Business Officer at Unizen (ZCX), a centralized-decentralized hybrid exchange, or CeDeFi. “We have seen teenagers build core building blocks of DeFi, which makes it really exciting to be a part of this space.”

Fine. But can I buy my groceries in Luna or Lumens if my credit card is blocked because I didn’t “support all the things” this month, or lay a wreath on my door in support of Dear Leader?

I mean, this is now plausible, am I wrong? You might need digital currencies one day (and not the digital dollar) as more than just a speculative investment traded on Kraken.

Lots of people are getting Bitcoin wrong. The moonshot may have already happened. The attacks against Bitcoin from centralized powers have put it in check. But Bitcoin is still hanging on.

A year ago, investment guru Ray Dalio warned that one day, Bitcoin might be shut down by the Feds.

“Very likely under a certain set of circumstances,” the Bridgewater Associates founder said, “Bitcoin would be outlawed just like the way the government banned citizens from holding gold in the 1930s.”

So central bankers – take your shot at Bitcoin. Dencentralized finance developers will welcome Bitcoin refugees to their platforms and their tokens instead.

The battle between centralization and decentralization rages on. Centralization has the edge. Many people in the DeFi space see it as a better financial architecture, disrupting intermediaries. But centralized systems can do this, too, on newly created blockchains.

“Think of DeFi as an alternative to the existing financial system, which is plagued by a number of inefficiencies, both time, cost, and energy wise,” says HyperDex’s Jeantet. “Users are stuck paying high fees to intermediaries as well as waiting days for a simple bank transfer to settle. With the technology we have nowadays this is quite frankly ridiculous. Look closer and you can easily begin to see the inevitability of decentralized finance.”

*The author of this article owns Bitcoin and Lumens.