“There is an attack on decentralised services”: ATH speakers on the perils of crypto regulation

What over-regulation threatens the industry with and how MiCA will affect it, how effective sanctions are, and what should change in Russian law. Guests of ForkLog’s All Time Half (ATH) conference weigh in.

Which legal action against crypto platforms is the most outlandish?

Sergei Mendeleev (Exved.com): The prosecution of TornadoCash developers. The most consequential for the industry is the SEC suit against Binance; the most topical is the case against Uniswap. 

Russia has had no cases that loud. Instead, there are numerous trials of P2P merchants unwittingly used by fraudsters. People are punished for what they did not do. That deserves attention. 

Does Russia use cryptocurrencies to evade sanctions?

Sergei Mendeleev: It is not about the restrictions imposed on Russia. Cryptocurrency is a convenient way to send millions of dollars without dozens of absurd procedures. 

Exporters and importers around the world use it. On some days Tether (USDT) turnover exceeds its issuance, which is about $100bn. 

Look at global foreign trade indicators and those figures make sense. 

Has a black market for crypto emerged in Russia because there is no regulation?

Sergei Mendeleev: Black markets trade prohibited goods, and cryptocurrencies are not banned in Russia. For exchangers it is a grey market; for foreign trade, a white one. 

Regulation in Russia is only taking shape. Authorities discuss new bills on digital assets almost daily. For instance, the central bank recently supported using cryptocurrencies for cross-border settlements. 

Yet when agencies allow something, they ban everything else. Legislative initiatives must be approached with care, especially since experts and the community are shut out of drafting.

Do major crypto exchanges still serve clients from Russia?

Sergei Mendeleev: I do not see serious restrictions. The largest global exchanges operate in Russia: Bybit, OKX, HTX, as do domestic platforms, though the latter are under economic pressure.

Recently, an exchange was added to the список SDN for allowing P2P transfers to sanctioned banks. But every platform listed above offers that feature. There is more politics than economics in that decision. 

Will authorities keep pursuing exchanges under the banner of counter-terrorism? Which platforms should brace?

Sergei Mendeleev: Everyone. Cloaking themselves in good intentions, oversight bodies overreach. 

There is an attack on decentralised services. I would not rule out that they will get to blockchains. They will come to Ethereum validators and ask why those nodes relayed terrorists’ transactions. 

Yet terrorist organisations have no need for cryptocurrencies. They use traditional financial instruments more effectively. I trust хавале far less than digital assets: blockchain transactions are easier to trace. 

We must fight the financing of terrorism. But tagging transactions is not enough: the community should expel those linked to such activity. 

Self-regulation is already happening, at least in Russia. If someone has ever been spotted laundering bitcoins or trading drugs, they are expelled from the professional community—people stop talking to them and remove them from chats. That rule is strictly observed. 

Is Russia’s cryptocurrency legislation outdated?

Andrei Tugarin (GMT Legal): Not quite. The federal law “On DFAs” was never able to regulate the huge turnover of cryptocurrencies in Russia. 

It introduced two concepts: “digital financial asset” and “digital currency”. Three and a half years on, people still do not understand the difference. In fact, just one and a half articles address cryptocurrencies. 

I cannot say regulators are not trying. They constantly propose and discuss new, fairly reasonable bills. But they never get adopted. Without a law, nothing can evolve with the industry. 

What laws are needed for full-fledged crypto regulation in Russia? 

Andrei Tugarin: We need a new definition of digital currency that fits different assets, not just bitcoin. The term itself is unimportant; what matters is what follows after the dash.

Then we can define market participants. For example, what an exchanger is in Russia, which rules it must follow, which registers to join. Spell out requirements for charter capital, staff and executives.

These texts already exist: I have personally read them and proposed edits. For some reason they are not being published.

How will MiCA affect the industry?

Andrei Tugarin: It is already affecting users and service providers: exchanges are temporarily removing stablecoin pairs for European clients. 

The drafters did serious work: they divided cryptocurrencies by type, set licensing rules, and imposed requirements on issuers and virtual-asset service providers. 

This is the first attempt to unify regulation across such a large territory. We now await EU countries integrating MiCA and acting accordingly. They have until the end of 2024.

Can business benefit from regulation?

Sergei Mendeleev: It depends on how smart it is. Casinos were regulated to the point they disappeared or went underground. 

People did not stop gambling, but the state lost control of the industry and the lion’s share of taxes. The central bank now has to fight illegal casinos tied to crypto processing, P2P payments and acquiring via third countries. 

A good example of regulation is taxis. In such cases, business meets legislators halfway. 

We will adapt even if the state imposes a total ban on cryptocurrencies—and might even earn more.

Andrei Tugarin: I agree with Sergei. Foolish regulation will push business into black and grey zones. Laws must give users a real way to defend their rights. 

Are we facing over-regulation? 

Sergei Mendeleev: Global regulators want to know who is behind every address. Judging by the bills being passed, they will soon split cryptocurrencies into two parts: with KYC and without. Assets in the grey zone will be blocked until verification.

Everything depends on us. We must set the rules of the game, or regulators will crush everything. Then we will face a reality in which the owner of 100 BTC cannot do anything with them.

Andrei Tugarin: Already now American and European supervisory bodies equate anonymous assets and privacy-enhancing mechanisms with money laundering. 

How should we regard such an approach? A rhetorical question. We have lived with this reality for several years. 

Will major platforms adopt new identification methods like WorldCoin?

Andrei Tugarin: It is hard to introduce substantial changes into entrenched practices. Besides, a large exchange cannot exist without KYC.

When a platform reaches certain trading volumes, regulators turn their attention to it and demand compliance. That recently happened to Uniswap.