Ripple CTO Debunks Compulsory Use of DeFi Compliance Features

Ripple Chief Technology Officer (CTO) David Schwartz has pushed back against compulsory use of DeFi compliance tools. Schwartz highlighted the disadvantages of making the use of Decentralized Finance (DeFi) features mandatory.

Protocol-level compliance debate

David Schwartz emphasized in an X post that compliance features at the protocol level are optional tools, not mandates. He explained that features generally enable people to do things if they wish to.

According to the Ripple CTO, DeFi protocols should offer capabilities without imposing them. To him, if adoption happens, it should be the user’s choice, not coercion.

Thia comment from Schwartz is a direct rebuttal to a post from Jake Chervinsky, criticizing protocol-level compliance in DeFi.

Chervinsky argued that embedding compliance tools at the protocol level inherently undermines the openness of DeFi.

He explained that it creates a centralized gatekeeper with the power to exclude users arbitrarily based on subjective risk assessments.

He references the Tornado Cash case, in which DOJ prosecuted developer Roman Storm partly for not building in sanctions compliance. This analogy implies that protocols should be forced to include such tools.

However, Schwartz stated that the protocol itself remains neutral and open. He believes anyone can use it without touching compliance if they do not want or need to.

This perspective suggests that users or apps layered on top can choose to integrate protocol features if it suits their business or jurisdiction.

Recent XRPL features spotlighted

Schwartz’s message came from the experience of Ripple with the XRP Ledger (XRPL). The protocol has included optional features like freeze lists and AMM Clawback Amendment on the XRPL mainnet.

These are changeable by issuers but do not affect the core ledger’s permissionless nature. It also aligns with regulated finance onboarding. While institutions want compliance hooks to handle real-world assets (RWAs) or cross-border payments, crypto natives can ignore them.

Specifically, the AMM Clawback feature opens a wide range of opportunities for the recently launched Ripple USD (RLUSD) stablecoin. With this feature, tokens issued with Clawback enabled can be used on the native AMM running on XRP Ledger.

In August, XRPL also activated three amendments, “fixAMMv1_3,” “fixEnforceNFTokenTrustlineV2” and “fixPayChanCancelAfter.”