If you thought THORSwap was done, you’re in for a rude awakening. Before THORSwap went into maintenance mode, it was the leading THORChain interface for exchanging native crypto assets without kyc among others. In the past 4 months, Thorswap has been facilitating swaps worth over $54M in monthly volume and recently crossed $1B in total trade volume in August 2023.

Unfortunately, Thorswap recently came under fire from law enforcement and regulators for, well, doing what it’s known for doing best, being an interface for facilitating swaps between native assets without kyc, only that this time, concerns was being raised about illicit funds being passed/swapped through the interface.

The Pause

The dev team had to take inconvenient drastic measures to pause operations to address the issue. This measure resulted in splitting the community into two factions, the first group claim that Thorswap should not succumb to regulatory requirements, the other group claim Thorswap will only be playing with the tail of a cobra if they don’t succumb.

From this incident, two facts were brought to light, First thing, whatever Thorswap was doing was being done well enough to attract regulators, second thing, Thorswap devs were at the front of the fire and whatever decision they made going forward was going to decide whether or not they got burnt by that fire.

Third fact, Thorswap is not a protocol that can run autonomously like Bitcoin as many thought and people who said the devs should not succumb to regulatory requirements are guilty of pushing Thorswap devs into fire. So the devs took a pause to address the issue and came up with an amicable solution.

Now, I’m not saying Thorswap should conform to regulatory requirements, neither am I saying they shouldn’t but there’s a problem that needs attention, if your service, being open and permissionless is being used to facilitate illegal transactions, will you sit back and fold your arms?

Many people have come up with several angles of arguments, saying things like criminals use Bitcoin all the time, criminals use the Dollar all the time, why should Thorswap care. And they are right, billions of dollars are being laundered through banks everyday, drugs are bought with bitcoin every other day, but we don’t see law enforcement breathing down on the dollar.

The need for guardrails

While being open and permissionless is often cheered on as it gives everyone access and contributes to the progress of humanity especially as it relates to our financial autonomy, being open and permissionless also has its draw backs especially when these features are being exploited and used by bad actors in ways that regresses humanity.

Guns don’t kill people, people kill people, but if guns had been made to decide if taking a particular life was justified before the trigger was pulled or before the bullet went out, how many innocent lives would have been saved? If guns could decide if the person being shot deserved to be killed or not, I think humanity would be better of today.

In essence, what I’m saying is that, we don’t need more “guns”, “dollars” or “Bitcoins” that aid both legal and illegal usage, if there’s a way to limit the things that draw us back without compromising our fundamental rights as a community, we should embrace it.

Address Screening

if Thorswap could implement measures to curtail the movement of illicit funds, we as a community should make effort to embrace those changes as long as it doesn’t compromise our progress. We should seek for progress always while we limit things that draw us back.

So, Thorswap has decided to partner with an industry leader to put some extra guardrails in place to help prevent the flow of illicit funds. Thorswap will be performing address screening, this way, wallets who’ve been blacklisted for illegal activities will be restricted from using the service.

Certainly nothing is foolproof, the success of this implementation will totally depend on the innovative approach the exploiters will come up with. Now that this is clear, anyone who thought THORSwap is dead is in for a rude awakening. It was rumored that the majority of the trade volumes recorded on Thorswap was from illicit funds being funneled through the interface.

To debunk the rumor, only about 4% of the trade volume were illicit funds. According to the data shown below, only about $131m out of $2.705b is illicit fund.

The Comeback

This shows that a vast majority of swap volume is legitimate. Even if THORSwap blacklists exploiter addresses, they are merely a drop in the ocean compared to the volume from legitimate swaps. The strength and resilience of THORSwap have been tested, but it remains steadfast. As we look to the future, one can't help but wonder: how will other platforms in the DeFi space navigate similar challenges? Will they take a leaf out of THORSwap's book or carve out their own paths? Only time will tell. For now, Thorswap still remains my go to interface for non kyc native crosschain swaps.

Other platforms can glean valuable lessons from THORSwap's journey. Firstly, the importance of being proactive rather than reactive. Waiting for regulatory pressure can lead to hurried decisions that may not always be in the best interest of the community. By anticipating potential challenges and creating solutions ahead of time, platforms can ensure smoother sailing.

Secondly, community engagement is paramount. In the decentralized world, the community is not just a user base; they are stakeholders, decision-makers, and, most importantly, believers in the cause. Keeping them informed, involved, and assured goes a long way in maintaining trust, especially during turbulent times.

Lastly, upholding the principles of decentralization is equally crucial to ensuring the platform isn't being misused. Striking this balance is the key to sustainable growth in the DeFi space and the progress of humanity.

Kindly share your thoughts below. Thanks for reading.

Art were generated with ai