Discussion on Uniswap and Regulation: Summary Review of ChainBreaker Podcast Episode 2

Here is a summary of the viewpoints from this live broadcast event.

Background Introduction:

On July 24, Uniswap Labs, the development company behind the decentralized cryptocurrency exchange Uniswap, announced the discontinuation of interfaces, restricting access to over 100 tokens, including tokenized stocks, mirror stocks, options, and derivatives. Uniswap Labs stated that this decision was made due to the "constantly changing regulatory environment," as the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have recently intensified their scrutiny of exchange tokens. This decision has also sparked widespread discussion and reflection within the community regarding regulation, governance, and other issues.

Mr. Block Chris:

DeFi will inevitably face regulatory issues, but the explosion of DeFi occurred in the summer of 2020. Due to the impact of COVID-19, regulation has been delayed, allowing DeFi to grow wildly.

The viral spread of DeFi has led users to establish great trust in the DeFi market; therefore, regulation may cause some panic among retail investors, but it will not significantly impact the main users of DeFi.

For the current DeFi market, excessive regulation may be akin to adding fuel to the fire, pushing the DeFi market to become stronger. When facing regulatory issues, if the incentives are strong enough, difficulties are not really difficulties.

If regulation is unavoidable, wallets will indeed be the first to bear the brunt, but the amount of funds in hot wallets is generally not very large, which will have a certain impact on the market, but it will not harm its essence.

Recently, CEX regulation has been very strict, such as integrating tax APIs, etc. Compared to CEX, DEX is the trend, and to avoid losing users, CEX will likely also layout DEX in the future.

Chain News Pan Zhixiong:

Uniswap Labs developed the initial protocol code for Uniswap Protocol, but Uniswap Labs does not own or control Uniswap Protocol. The upgrades and modifications to the Uniswap Protocol are driven by the community and implemented through UNI voting. The official team has long isolated the risks, and we can still continue to use the protocol. Of course, even in the worst-case scenario where Uniswap encounters problems, we still have other leading DEXs like Sushi, so there is no need to be overly anxious.

If regulation is unavoidable, on one hand, the front end, website, and domain names will likely be the first to be affected, so this part needs to be more compliant; on the other hand, wallets are also a major area of regulatory concern. Although wallets may be open-source, the vast majority of wallets have centralized operating teams.

In the future, the front end will eventually become decentralized, and there are already many decentralized solutions for the front end. We can expect to see a complete decentralized stack in the future, with even the front end distributed across various nodes, which will further increase the difficulty of regulation.

If we categorize the decentralized front end into several layers, I believe: the first layer is entry browsers, such as Opera; the second layer is decentralized domain names and domain name resolution, such as ENS; the next layer is storage and computation, such as IPFS, Filecoin, etc. Once these three layers are interconnected, users will be able to access any website through the front end without any interference in between.

Currently, the cost of running an Ethereum node is indeed a bit high, and most users do not have this capability. As Ethereum develops more structures and layers in the future, it will indeed require computing power at the level of a Raspberry Pi and relatively low storage space to build some full nodes. This way, users will have strong censorship resistance when using Ethereum.

User Questions:

1. Is decentralized storage, such as IPFS and Filecoin, at a stage where it can be applied?

Mr. Block Chris: Long before Filecoin came out, users could already store data on IPFS, where many movies can also be found, although the quality is not very high and the speed is not that fast. Many NFT archives are stored on IPFS.

2. Is it possible for Uniswap to have a front end that can be used in many places like Liquity?

Mr. Block Chris: Absolutely, and there are already many teams operating Uniswap front ends, such as 1inch, Debank, etc.

Chain News Pan Zhixiong: Uniswap has a decentralized front end. You can access Uniswap.eth directly if your browser supports it; if not, you can visit uniswap.eth.link. Even if Uniswap Labs terminates the network front end, it can still survive. They update the front end versions and resources to IPFS every day, and they have also purchased the Ethereum domain name system uniswap.eth, registering the corresponding IPFS resources under this domain name. The entire system is connected, allowing access from the domain name to the resources and front end.

4. What are your views on the future of stablecoins? Is it possible for commercial banks to enter DeFi through stablecoins, or will governments and commercial banks stick to CBDCs and create their own centralized on-chain financing platforms?

Mr. Block Chris: I think it’s a bit difficult, as the digital currency issued by central banks is fundamentally different from stablecoins.

Chain News Pan Zhixiong: The CBDC part on the mainland uses consortium chain technology, which is not entirely blockchain.

5. How does Uniswap V3 ensure liquidity without rewards? Is Uniswap V3 successful?

Mr. Block Chris: Uniswap has enough brand effect to attract participation. The reason many assets still remain on Uniswap V2 is that at the current stage of DeFi development, many early teams want to modify some things, which can lead to a situation where one change affects the whole.

I believe V3 and V2 can coexist in a long-term state, where ordinary users can choose V2, while more mature assets can choose V3.

Chain News Pan Zhixiong: The market-making returns of V3 are still quite considerable, which is one of the attractions. Additionally, from the data perspective, although V3's TVL does not rival V2, V3's trading volume has already surpassed V2 by more than twice, showing impressive performance in improving capital efficiency.

This podcast content references the article: https://mp.weixin.qq.com/s/MPWMUpPL9fTimKqKpZ3y9w