DeFi faces criticism for denying user access based on wallet content

While decentralized finance (DeFi) is expected to be an upgrade to traditional finance mechanisms, some believe that denying users access to decentralized exchanges based on their wallets is a backward move.

In a tweet, entrepreneur Brad Mills criticized DeFi for denying users access to decentralized exchanges (DEXs) due to various factors such as location and wallet content. Because of this, Mills described the future of Web3 as a “surveillance panopticon” and said that it has rebuilt everything wrong with Wall Street but on a blockchain. Within the tweet, Mills also shared an image of a pop-up message from 1inch Network’s decentralized application (DApp) restricting access because of the wallet address used.

In a statement, Sergey Maslennikov, the chief communications officer at 1inch, told Cointelegraph that restricting wallets is part of their efforts to provide a safe and compliant community environment. Maslennikov explained that:

“Users’ wallets which are owned or associated with clearly illegal behavior like: sanctions, terrorism financing, hacked or stolen funds, human trafficking, and child sexual abuse material (CSAM) are prevented from interacting with the 1inch dApp.”

According to Maslennikov, the DeFi aggregator complies with all applicable sanctions and embargo lists. Apart from this, the DEX also follows Anti-Money Laundering (AML) and terrorist financing prevention regulations, as well as efforts by the global community.

Meanwhile, the Financial Action Task Force (FATF) recently noted that countries that are ignoring the rules for crypto AML may be placed on the watchdog’s grey list, which is a list subject to increased monitoring. At the moment, there are 23 countries on the list, including crypto hubs like the United Arab Emirates and the Philippines.

In terms of terrorist financing, a United Nations (UN) official recently highlighted that terrorists still prefer to use cash over crypto. Svetlana Martynova, the Countering Financing of Terrorism Coordinator at the UN, said in a special meeting that while cash is still the predominant method for terrorist financing, terrorists are able to adapt to new technologies, and this includes crypto.