Regulatory Arbitrage and then Appealing to traditional authorities

The key point here is that these in theory decentralized non-state dependent efforts ultimately come back to depending on classic (centralized) state institutions (or equivalents therefore) for key functions of enforcement and dispute settlement. This issues relates to concepts/incomplete-contracts.


2022-06-24 example of

In their complaint, lawyers for Kellar and Day argued that two particular steps of the attack violated statutes against market manipulation and computer hacking. One was swapping almost all the UNI tokens out of the DEFI5 pool, the otherwise irrational trade that distorted the pricing such that Medjedovic could buy tokens out from under Indexed users, who were forced by the algorithm to sell. “The only purpose of that trade was to mislead token holders to part with tokens on terms they never would have agreed to,” says Stephen Aylward, a lawyer representing Kellar and Day. “We say that’s a form of market manipulation.” The same argument applied to Medjedovic’s interaction with the CC10 pool.

You could only set up an index fund on blockchain using smart contracts with no regulation ... and yet one one then appeals to traditional courts and law when someone exploits that.

A point made by DeFi purists:

DeFi purists would prefer to keep governments away from their platforms. Chris Blec, who runs the watchdog site DeFi Watch, tweeted that the attack on Indexed was “an embarrassment for DeFi” and criticized the team for turning to a centralized institution like the courts for help. Kellar says he doesn’t see an alternative—it’s not like DeFi has its own justice system. And anyway, he believes DeFi should operate within the existing legal framework. “I think it should be decentralized in terms of governance and the management of projects,” he says. “But you need a central authority to enforce basic rules.”