INSUBCONTINENT EXCLUSIVE:
Opinion by: Raks Sondhi, chief operating officer of FreedxGoverning composable, borderless and programmable ecosystems with rules made for
simple, static financial systems presents a fundamental challenge.In the past year alone, decentralized finance (DeFi) platforms held over
$60 billion worth of crypto assets locked in their protocols
Yet most jurisdictions still lack a clear definition of a decentralized autonomous organization (DAO)
This confusion is slowing innovation and undermining the credibility of regulatory institutions.Lawmakers still assume there is a
centralized actor to license, audit or subpoena
However, DAOs are intentionally decentralized, smart contracts operate autonomously and onchain assets can move without permission.Although
US regulators have started targeting protocols under existing securities laws, courts struggle to determine if autonomous software can be
Legacy regulatory tools were not designed to oversee systems that evolve in real-time
USDt (USDT) that do not comply with its standards
In the US, the SEC and Commodity Futures Trading Commission have brought legal action against DAO participants and DeFi protocols
heavily on retroactive enforcement, which results in a chilling effect where builders hesitate to move forward, capital sits idle, and
They are slowly patching holes in a highly dynamic and evolving space.Governing software through embedded complianceHow do we stop chasing?
The answer lies in some sort of policy-as-code solution
Instead of trying to fit decentralized technologies into traditional legal systems, we need a new policy infrastructure that is as
composable and programmable as the technologies it needs to oversee
FCA-registered BCP launches British pound stablecoinJust as financial instruments onchain are now composed of interoperable modules, a
lending protocol should be able to plug in specific compliance modules to fit their jurisdictional needs
A DAO treasury should be able to self-report tax events as they occur
projects are already developing components for privacy-preserving and onchain compliance
Other projects are building permissioned architectures to align with regulatory demands
Legal clarity from embedding policy directly into the infrastructure would reduce the enforcement gap and enhance consumer protections.For
developers, it unlocks the composability of regulatory regimes, allowing them to select from jurisdictional templates like they do UI
components, adapting their codebase in real time to meet evolving policy
No more guessing whether your DAO token is a security, no more wondering if a protocol is subject to reporting requirements, and less
As with any other connected environment, code can be exploited
We must wonder what would happen when a compliance module is compromised, malfunctions or becomes outdated
Governance, security and upgradability remain essential, but democratic oversight is a pillar of blockchain technology
Embedding regulation in code must not mean removing it from public accountability, as that will decrease trust and transparency, further
allowing the gap between regulation and permissionless innovation to widen
markets, enforcement chaos and capital flight.Policy must modularly evolve and adapt to new structures, logic and ecosystems
The key to unlocking that is to govern software with software.Opinion by: Raks Sondhi, chief operating officer of Freedx
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice
