Anti-Money Laundering Rules Targeting DeFi, NFTs Could Be Fatal, Analysts Warn

In brief

  • FATF published draft guidance categorizing DeFi as Virtual Asset Service Providers (VASPs) that must combat financial crimes.
  • Critics told Decrypt that FATF’s guidance isn’t realistic, but the industry shouldn’t just shrug it off as it carries potentially fatal implications.

The Financial Action Task Force (FATF), a global anti-money laundering watchdog based in Paris, released draft guidance on Friday that, if adopted, poses an existential threat to the booming DeFi and NFT markets, analysts say.

In its new guidance, the FATF defined most operators of decentralized finance (DeFi) platforms as “Virtual Asset Service Providers” (VASPs). That means that, if the guidelines are adopted in the US and other major jurisdictions as proposed, many DeFi platforms will have to find a way to comply with rules around combating financial crimes. But that won’t be as easy as it may sound.

DeFi, or decentralized finance, is a general term for non-custodial and peer-to-peer financial services. DeFi protocols often use smart contracts (essentially just computer code) to allow money to flow between traders, and they exist primarily on the Ethereum network. In short, these products allow their users to use bank-like services without the need for bank, or any other third-party intermediary.

Analysts told Decrypt that FATF’s 99-page document is out of tune with the realities of DeFi and, if adopted by governments as it is, could prove fatal for the burgeoning industry.

The document also vaguely referred to NFTs that can facilitate money laundering and terrorism financing as “virtual assets,” though left room for those that can’t be used for such financing to not fall under its guidelines. According to the analysts we spoke with, it’s an unhelpful distinction.

DeFi: If you make money, you’re a VASP

The most contentious change in the new FATF draft guidance is the key criterion in determining who’s a VASP. That largely comes down to monetization.

If you’re a software developer or coder who builds a DeFi protocol, say for fun, that doesn’t make you a VASP, explained Lewis Cohen, co-founder of DLx Law, a New York-based legal firm specialized in blockchain.

But if you commission someone to build it for you (and you pay them, of course), then that could make you a VASP, Cohen told Decrypt. Similarly, as is widely the case, if you set up a company that is profiting off running a DeFi project (say, through holding a significant amount of “governance tokens”), then there’s a good chance that FATF thinks that you’re a VASP.

“The fig leaf FATF gives us is this: if you build a DeFi platform out of pure kindness, and if exchanges on that platform are truly peer-to-peer, then that’s probably okay,” Cohen told Decrypt.

“But that’s not how the world of DeFi works today,” he said, “DeFi isn’t meant to be a grand charitable exercise.” People make money off the platforms they build and run, after all.

That distinction is a big deal because VASP status brings with it massive responsibilities around preventing financial crimes that FATF care about: money-laundering, terrorism financing, and financing of mass weapons of destructions.

But that’s not an easy feat for fundamentally anonymous projects.

“You clearly have the problem of enforcement through anonymous protocols such as SushiSwap,” Ian Taylor, chair of the trade association CryptoUK, told Decrypt, “Nobody knows what jurisdiction SushiSwap is, and I’m not certain that anybody knows who the developer Chef Nomi is—and it’s just one example, but a representative one.”

Much of the language and the thinking behind the guidance is alien and inapplicable to DeFi, explained Taylor. “A VASP in centralized finance can technically comply with requirements like Travel Recommendations 16, because it has to work with current financial institutions; it has to have a relationship with a bank for a fiat on-ramp, and it needs to custody crypto funds.”

“But DeFi is totally peer-to-peer; you’re swapping, not transacting. There are no counterparties involved here. So the logic of centralized finance doesn’t apply here at all.”

Beyond the difficulties of practical enforcement, Cohen also sees an existential threat in all this.

“FATF basically concludes that the risks associated with DeFi are greater than its societal benefits,” he said, “and so they are recommending to the governments that they do everything they can to stop digital asset-related financial relations that aren’t intermediated.”

But there wasn’t much noise about it in crypto, he said, “It seemed like last weekend after the FATF guidelines were released the whole crypto community was more interested in the chatter about BitClout,” referring to a new crypto firm that controversially tokenizes influential Twitter accounts without the permission of account owners.

“And yet, functionally, this proposal seeks to eliminate DeFi in any way.”

A broad-brush take on NFTs

Unlike the painstakingly detailed treatment of DeFi—misguided though it may be, according to the critics who spoke with Decrypt—FATF didn’t have much to say about NFTs. But perhaps influenced by the current white-hot NFT craze, it didn’t completely leave it out, either.

“Even NFTs may fall under the FATF’s definition of VA if they can be used to facilitate money laundering and terrorism financings,” Cohen told Decrypt, adding that is a very subtle distinction.

“How are you getting to categorize whether it can be used for money laundering and terrorist financing?,” Taylor told Decrypt, “You can either say that everything can be, or none of it can.”

Cohen offered one theory as to what FATF might have in mind. Perhaps they were thinking of relatively lower-value NFTs like NBA Top Shot “moments,” crypto-based digital trading cards that sell for as a little as a few dollars, as the sort of non-fungible tokens that don’t cause money-laundering concern, he said.

“Perhaps it was the Beeple effect [referring to the digital artist that just made $53 million in an NFT auction at Christie’s] that made FATF think twice about the risks posed by NFTs as it was finalizing the draft,” he told Decrypt.

It’s not a novel concern; after all, the art world has always had a money-laundering problem.

Hope for change?

FATF’s draft guidance is draft because it wants input from the industry by the end of April as it finalizes its recommendations to member governments.

“This is again like FinCEN’s non-hosted wallets proposal that didn’t involve much dialogue with the crypto industry, and so it was not based on technical realities,” Taylor said. His trade body CryptoUK will submit feedback on the draft guidance.

But Cohen isn’t very optimistic: “Much work went into this work, and it’s not like they’re going to fundamentally overhaul their recommendations.”


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Why Crypto Needs A Curator More Than Ever

For the past three years, Decrypt has had one mission: make the world of cryptocurrency and decentralized technologies an easier place to understand and access. 

In the early days, that mission focused on creating simple – not to mention beautiful – explainers on some of the core concepts defining the Web3 world.

Decrypt: the early years.

As LitePaper expanded – and would eventually evolve to become Decrypt – that mission grew. We wanted to not only explore the technology, we also wanted to help our growing readership learn about the people, places, and projects that were helping this world flourish and thrive.

Bringing you the stories that matter. IMAGE: Decrypt

But blockchain never sleeps. 

As the technology has accelerated and become simpler, quicker, and millions of people are waking up to this new world, so the need to provide new ways of navigating the Web 3 world grows. That’s why Decrypt believes there needs to be a more curated approach to helping people understand the trends and ideas shaping how things work.  

The shape of things to come.

A case in point: As of March 2021, there are 8,900 active cryptocurrencies, 36,739 markets, exchanges, and trading pairs where billions of dollars worth of currencies are bought and sold, not to mention the thousands of artists, musicians, creators, and companies pouring into this space. That’s a lot of new stuff to try and digest. This is why Decrypt is going to do the hard work for you. 

We’ve helped keep our millions of readers informed about the stories that matter, we’re now going to help tastemakers and businesses discover the trends shaping this world. 

Each month, our creative team will showcase a variety of ideas that we believe are actively shaping this space. Some of them will appear on our newest platform, Decrypt Drops (more on that tomorrow). And some will be insights from our creative team published on our website. Why are we doing this? 

Decrypt staffers are regularly contacted by friends and family members in industries adjacent to crypto but also further afield asking for help understanding this space. 

We also have businesses reaching out asking the same thing. Everything from copyright issues surrounding NFTs, the environmental impact of crypto to the ongoing debate about diversity in the workplace. So we thought why not share our considerable knowledge and insight with a broader audience? 

Over the next few weeks, you’ll start seeing more from Decrypt‘s collective hive mind sharing insights, thoughts, and offering a helping hand to anyone in need of a friendly space in this space.

Decrypt is on a broader mission to distill everything we have learned about the decentralized web over the last three years to bring our readers closer to the people, products, and places that matter in new and exciting ways. 

This is the next chapter in that journey. Need help finding your way through the crypto maze? Reach out to


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Coinbase listing effect reemerges as Ankr, Curve (CRV) and Storj rally

On March 23 the Coinbase listing ‘bump’ reemerged as the exchange announced that it would list Ankr (ANKR), Curve DAO Token (CRV), and Storj (STORJ) on Coinbase Pro.  

A blog post from the top U.S.-based cryptocurrency exchange stated that inbound transfers for ANKR, CRV and STORJ are available beginning March 23 with trading set to “begin on or after 9 AM Pacific Time (PT) Thursday, March 25, if liquidity conditions are met.”

CRV/USDT vs. ANKR/USDT vs. STORJ/USDT 1-day chart. Source: TradingView

While there has been previous debate as to whether or not a Coinbase listing could still affect price movement in a positive way, today’s announcement resulted in double-digit rallies for all three projects on an otherwise red day in the market.


The Ankr network is a blockchain-based distributed computing platform that aims to create an easy and affordable way for developers to deploy multiple blockchains to leverage idle computing power from devices and data centers.

ANKR/USDT 4-hour chart. Source: TradingView

ANKR has been on a hot streak since the beginning of February, with its price skyrocketing 900% from a low of $0.011 on Feb. 1 to a record high of $0.109 following the announcement from Coinbase and multiple partnership announcements and protocol upgrades led to a steady increase in trading volume.

According to data from Cointelegraph Markets Pro, market conditions for ANKR have been favorable for some time.

The VORTECS™ score, exclusive to Cointelegraph, is an algorithmic comparison of historic and current market conditions derived from a combination of data points including market sentiment, trading volume, recent price movements and Twitter activity.

VORTECS™ Score (green) vs. ANKR price. Source: Cointelegraph Markets Pro

As seen in the chart above, the VORTECS™ score for ANKR began to pick up on March 18 and reached a high of 70, roughly 12 hours before the price increased 32% over the next two days.

Following a pullback in ANKR price on March 21, the VORTECS™ again began to climb and reached a high of 76 on March 23, five hours before the price spiked 36% following the listing announcement.


Curve Finance is an Ethereum (ETH) based decentralized exchange and automated market maker protocol that is powered by the CRV token. The primary goal of the exchange is to facilitate swaps between stablecoins like USDC, DAI and other ERC-20 tokens like WBTC and renBTC.

CRV token holders have the opportunity to stake their coins on the network and participate in governance votes directing the future development of the platform as well as receive a share of the fees generated by the protocol.

CRV/USDT 4-hour chart. Source: TradingView

CRV benefited from the growth of decentralized finance (DeFi) during the first two months of 2021, seeing its price rally almost 600% from a low of $0.52 on Jan. 11 to a high of $3.67 on Feb. 6.

VORTECS™ data from Cointelegraph Markets Pro began to detect a bullish outlook for CRV on March 22, prior to the recent price rise.

VORTECS™ Score (green) vs. CRV price. Source: Cointelegraph Markets Pro

As seen in the chart above, following a spike in the price of CRV between March 17 and March 20, the price began to fall while the VORTECS™ score began turning green late on March 20.

CRV price continued to decline over the next two days while the VORTECS™ score remained stable and turned green on several occasions, reaching a high of 66 on March 22, ten hours before the price would stage a 48% rally.


Storj (STORJ) is an Ethereum-based token that powers a cloud storage platform called Tardigrade that uses a decentralized network of nodes to host user data in a secured way using advanced encryption.

When users upload files to Tardigrade, pieces of each file are distributed to the global network of independent nodes which store the data until someone requests a specific file, at which point it is securely recompiled and made available for download.

This process enables secure file storage without the need to trust a centralized data center such as the Amazon Web Services or the Google Cloud. Users of the network who contribute their resources like unused hard drive space and bandwidth to Tardigrade earn STORJ tokens as a reward.

STORJ/USDT 4-hour chart. Source: TradingView

Since reaching a low of $0.445 on Feb. 23 when the cryptocurrency market experienced a sharp correction, the price of STORJ has rallied 311% to a high of $1.83 on March 23 following the Coinbase announcement.

While the significant price growth over the past 24-hours for ANKR, CRV, and STORJ demonstrate that the Coinbase bump remains a potent source for price movement, a more significant driver of their price action has been the steady growth and adoption of project.

From cloud storage, computing power and unused bandwidth to decentralized finance and exchanges, decentralized networks are growing in prominence and strength with no signs of slowing down anytime soon.