Hey there! Welcome back to another quick discussion on the legal side of decentralized finance. We will cover all regulated countries, thus if you don't see your country on this list, it's probably unregulated. But prior to everything, we discuss if it's even possible to regulate the DeFi markets. Understanding the underlying blockchain technology is imperative to comprehend the issues with handling DeFi. Lastly, regulations on DeFi change constantly, thus we recommend checking back on this article to ensure you're up to date. Please keep in mind, regulating DeFi is no simple feat, here is why...

Is regulating DeFi even possible?

Seen as blockchain provides a strong foundation for uncensorable and immutable content, unfortunately regulating DeFi becomes quite complicated. Many countries have used laws and taxes to fight it and keep money in traditional banks. The legal side of DeFi becomes quite murky as well if people will always have access to it through a VPN.

Banning DeFi effect: Causes a large number of withdrawals from a decentralized project. Furthermore, enforces some to remain active through VPN connections, thus not declaring taxes on it.

Taxing DeFi effect: This may cause a large number of withdrawals. This occurs as it's a volatile market and outcomes remain unpredictable. Yet, it also causes a large number of people to worry more about their financial privacy.

Though it's always possible to use DeFi if the legal side does not agree, you are at risk of persecution through legal actions. Furthermore, if you've read our blog post on privacy in crypto, you'd know that MetaMask and others log IP addresses. Lastly, exchanges (which are used for purchasing crypto), undergo a rigorous KYC which further de-anonymizes the blockchain. Yet, regulating DeFi is no simple feat as the technology is based on blockchain.

DeFi Regulations in...

China

China has completely distanced itself with a negative position on cryptocurrencies in general. They have banned the use and purchase of Bitcoins and cryptocurrencies. Furthermore, they banned cryptocurrency mining in 2021. Making all types of cryptocurrency transactions illegal.

Russia

Russia has decided to regulate cryptocurrency and will draft a bill by Feb 18. Furthermore, Russia plans to tax cryptocurrency. However, the details are not yet exactly clear as to what DeFi regulations will arise.

European Union

The European Union has issued a guide for DeFi companies to adhere to. Essentially, it regulates DeFi as a traditional financial service. As such, it is taxable, and DeFi projects must respect relevant laws and authorities locally. However, regulations for DeFi projects have not yet been rolled out from the EU and must be respected from country to country.

United States

The SEC has labeled DeFi security, as such, people using DeFi or offering DeFi services, must adhere to the relevant securities laws. Furthermore, crypto is taxable as securities are. There are multiple relevant departments aimed at persecuting and pursuing cryptocurrency, including but not limited to, the Department of Justice, and the Security and Exchange Commission. Thus, DeFi is legal, as long as it's registered with the proper authorities.

India

India has placed some of the highest taxes on cryptocurrency gains. With a whopping 30% on profit and a 1% tax on each transaction. Furthermore, India wishes to levy a CBDC to modernize its monetary system. However, DeFi laws have not yet come out, thus rendering DeFi regulations unclear.

Bolivia

Bolivia has placed an absolute ban on cryptocurrency in general. Thus DeFi is not permissible.

Afghanistan

The Taliban has placed a ban on cryptocurrency trading, thus DeFi falls under the same category, and is considered illegal.

Bangladesh

Unfortunately, Bangladesh has also taken a negative stance on cryptocurrency. The government has regulated cryptocurrency and DeFi by rendering them completely illegal. In fact, the Bangladesh Bank made a statement in September 2014 stating  "anybody caught using the virtual currency could be jailed under the country's strict anti-money laundering laws".

Nepal

Nepal has also taken a negative stance on DeFi and cryptocurrency in general. Bitcoin and cryptocurrencies are completely banned in Nepal.

Others

Other countries either legalized cryptocurrency or have not yet regulated it yet. Alternatively, the DeFi legalities may be too unclear at this time. If you feel something from this list is missing, or needs to be updated, feel free to reach out!