When it comes to the growth of blockchain and cryptocurrency technologies, we cannot ignore the crucial role of Decentralized Exchanges (DEX). DEX and Centralized Exchanges (CEX) are two types of crypto exchanges with different working principles. DEX operates without a central entity controlling it, allowing users to transact directly with each other through smart contracts, enhancing anonymity and security. However, it also has weaknesses such as a lack of consumer protection, difficulty of use, low liquidity, and potentially high transaction or ‘gas’ fees.
Meanwhile, CEX is run by specific organizations or companies that act as intermediaries in each transaction. Consequently, users on CEX must entrust their crypto assets to a third party and may face security risks, although CEX typically offers higher transaction speeds, better liquidity, and more user-friendly interfaces for beginners.
As of the end of May 2023, according to Cryptoslate data, the DEX market share compared to CEX for spot trading volume has reached 22%, compared to only 17% in January 2020, and a low of 8% in September 2022. This trend needs to be monitored as it reflects the strengthening of DeFi, of which DEX is certainly a form.
In the context of nations and their citizens’ protection, the challenges posed by DEX and other decentralized financial systems (DeFi) become significant topics. How can a country protect its citizens from fraud, price manipulation, and even money laundering? What about taxation issues, a source of state revenue?
States have a duty to protect their citizens and ensure fairness and safety in every transaction. However, with the decentralized nature of DEX and DeFi systems, this becomes a unique challenge. A solution is needed to address this challenge.
One such solution is the concept of “Safeguarded Token.” I called it as Safeguarded Token, since the token will be moderated and curated by certain rules and regulations for customer protection. In this system, I propose a “launchpad” allowing governments to monitor and curate tokens through smart contracts. In the crypto world, a launchpad is used to launch new tokens, typically serving as a medium for new blockchain projects to raise funds through Initial DEX Offering (IDO), Initial Coin Offering (ICO), or other crowdfunding mechanisms.
With smart contracts, governments can ensure that only tokens meeting specific criteria are launched. Smart contracts are computer protocols that enable, verify, or enforce negotiation or performance of a contract automatically. Smart contracts allow two parties to transact without requiring a mediator.
These smart contracts can be designed to comply with KYC (Know Your Customer) rules that verify user identity, limit price fluctuations to prevent manipulation by speculators, and allow governments to monitor transactions for tax purposes. Thus, governments can ensure that DEX and DeFi are used fairly and safely while ensuring that taxes can still be collected.
It should be noted that a solution like this requires close cooperation between governments, technology companies, and the blockchain community. Technology can provide solutions to these challenges, but it must be backed by proper regulations and a correct understanding by all parties involved.
In facing these challenges, it must be remembered that the primary goal is not to control or limit technological advancement but to create an environment where technology can thrive while still providing security and fairness to all users. Therefore, a solution like “Safeguarded Token” could be a good initial step in achieving a balance between the benefits of blockchain technology and the role of the state in protecting its citizens.
With a “Safeguarded Token” approach, governments can play a role in preventing fraud and other illegal practices while maintaining the fundamental principles of blockchain and crypto. However, implementing this approach certainly requires deep understanding of the technology and readiness to adapt to rapid changes.
First, clear and effective regulations must be created. Although blockchain is decentralized, some aspects can be regulated. For example, companies launching tokens or running a launchpad could be required to comply with certain regulations. Governments can also use blockchain technology to monitor transactions and prevent illegal activity.
Second, education is a critical key in ensuring consumer protection. Citizens must be equipped with knowledge and understanding of the risks and benefits of crypto transactions. This includes understanding how blockchain works, how crypto prices are determined, and how to protect oneself from fraud.
Third, cooperation between governments, technology companies, and the blockchain community is crucial. Through collaboration, better solutions can be found and implemented. Technology companies and the blockchain community have knowledge and experience that can help governments formulate and enforce effective regulations. Conversely, governments can provide a legal framework that allows this technology to grow and benefit society at large.
“Safeguarded Token” and other such solutions represent only the beginning. The landscape of blockchain and crypto technology is ever-evolving and will continuously bring forth new challenges. Therefore, governments, along with all stakeholders, must be prepared to persistently learn and adapt. Even though these challenges might seem daunting, the myriad opportunities that this technology promises justify the efforts put forth. With the right approach, we can foster an environment where blockchain thrives, ensuring security and fairness for all its users.
Indonesia, given its immense potential and resources, is strategically positioned to lead innovations in the blockchain domain. The concept of the Safeguarded Token emerged from discussions with Salmon Meidy from Salmonation and the development of the layer 1 BeOneChain, a part of the Nakama.id portfolio. Nakama.id is a platform that champions the growth of digital startups in Indonesia.
BeOneChain and Nakama.id hold a clear vision on how blockchain technology can be seamlessly integrated with existing regulations to cultivate an ecosystem that’s equitable, secure, and sustainable. Furthermore, it aims to accommodate the growing trend of decentralization, which is swiftly becoming a mainstream digital movement. However, for these ideas and innovations to take root, full-fledged support from the government is indispensable.
Key governmental bodies like the Financial Services Authority (OJK), Ministry of Communication and Information Technology (Kominfo), Ministry of Finance (Kemenkeu), National Research and Innovation Agency (BRIN), and the National Cyber and Crypto Agency (BSSN) play pivotal roles in realizing and endorsing these innovations. Their responsibilities not only encompass ensuring appropriate regulations but also involve understanding, promoting, and facilitating the growth of this technology.
BeOneChain can function as a nucleus for blockchain technology exploration and experiments, acting as a regulatory “sandbox”. This is a safe space where various ideas and innovations are trialed before they are implemented on a grander scale. Through a synergistic collaboration between the government, developers, and thought leaders in this realm, Indonesia stands a chance to set global benchmarks in blockchain innovation.
Given Indonesia’s vast potential and the commitment and vision of its leaders in this domain, we can remain optimistic. Indonesia is not just poised to follow global trends, but it can pioneer, setting standards for other nations in adopting and integrating blockchain technology within their financial and regulatory systems.