Curve Finance (CRV) founder Michael Egorov said regulatory pressure from the Financial Action Task Force could push decentralized finance protocols toward greater decentralization and stronger security, even as he criticized how anti-money laundering rules are being applied to the sector. In an interview with The Block, Egorov argued that protocols can strengthen their security case by minimizing privileged access, removing upgrade risks, and eliminating any party’s ability to interfere with user funds.
His comments followed the FATF’s July 21 report on applying AML and counter-terrorist financing standards to DeFi. The report focuses on whether a person or entity has control or sufficient influence over a DeFi arrangement, rather than whether a protocol calls itself decentralized. Factors regulators may consider include the ability to change protocol parameters, upgrade smart contracts, exercise administrative privileges, control governance voting blocs, and manage access to permissioned functions. Egorov said the smart contract architecture is the most objective measure of a protocol, and that a development team alone should not establish control.
FATF divides DeFi arrangements into three categories: arrangements with identifiable controllers, arrangements where controllers exist but cannot readily be identified, and truly decentralized arrangements with no person maintaining control or sufficient influence. The report also found a substantial implementation gap: almost 93% of reporting jurisdictions, or 132 of 143, had not implemented Recommendation 15 for DeFi arrangements within the regulatory perimeter, and only two of 142 jurisdictions reported having licensed or registered a DeFi arrangement in practice.
Egorov said regulatory pressure could ironically force DeFi to become safer, but warned that copying traditional finance rules to DeFi would be largely negative because mechanisms and risks work differently. The FATF report is non-binding but is expected to influence national legislation, supervisory decisions, and FATF’s mutual evaluation process.
