Are we actually doing any good for Yemen, or just driving them deeper into the darkness? The story that DeFi will be a liberating force in sanctioned countries such as Yemen is extremely tempting. If we’re being real, it’s foolishly idealistic. While proponents tout financial freedom, we're potentially fueling a system rife with risks, all while believing that we're doing good.

Sanctions Drive DeFi, Really Helping?

Sanctions are blunt instruments. We know this. The stated purpose is to destroy the Houthi rebel movement, but in practice, the Yemeni people suffer the consequences. With the door to traditional banking access slammed shut, they’re seeking refuge in DeFi. According to TRM Labs, more than 63% of Yemen’s crypto web traffic is now directed to DeFi platforms. That’s an even more staggering figure, dwarfing all centralized exchange daily trading volume. They are looking for substitutes, naturally they are. But is this really empowerment, or just desperation creating opportunity for those who don’t have our best interests at heart?

Here's where the "unexpected connection" comes in. Like all good policy, we have to be playing the long game here. What we learned when an entire nation’s financial system was entirely unregulated becomes a playground for illicit activities. Money laundering, terrorist financing – these are not abstract threats. They are very real possibilities, and this is further amplified by the anonymity and borderless nature of DeFi. Most recently, the US government relisted the Houthi group as a designated terrorist group in January 2024. Within a month of this event, one crypto exchange in Yemen saw its trading volume increase by over 270%. The real question though, is from where that money actually came from, and to where it’s really going.

Freedom's Price: Unintended Consequences?

In politics, the concept of freedom itself can be a hugely emotive dog whistle. We all want it. However, we shouldn’t mistake the concept of financial freedom as a free pass for financial chaos. Crypto’s absence from regulations in Yemen. However, this lack of crypto regulation is not a feature, but rather a bug.

This is no linear path to prosperity. This is a dangerous feedback loop with dire consequences. The “freedom” narrative overlooks these awful dynamics that breed upheaval and unsettle many already broken and undermined institutions. We are recklessly sacrificing security at the innovation altar here.

  • Sanctions intended to weaken a designated terrorist group
  • Resulting in increased DeFi adoption in Yemen
  • Leading to a surge in crypto trading volume

I'm not saying DeFi is inherently evil. Innovation has its place. But we have to do it responsibly, particularly in areas of conflict. Blindly dumping sanctions on the market and then looking the other way to the ensuing crypto Wild West is no approach.

Responsible Action, Not Just Condemnation

We need a nuanced approach. The US government and the international community need to place appropriate regulations on DeFi activity in Yemen. This isn’t shutting down innovation, this is stopping the unintended negative consequences of our curiosity from running away from us. As advocates, we need to answer one important question. Instead, are we creating a system in which sanctions can be easily circumvented, even empowering the very actors we are trying to punish?

It’s past time to abandon the utopian belief that DeFi will save us from everything. Let’s take a more honest, realistic and responsible approach. The stakes are just too great to allow this to continue. We need to do that today. If not, we may turn Yemen’s DeFi boom from an imagined land of crypto liberty into a nightmare powered by sanctions.

We need to consider the following:

  • Enhanced monitoring of crypto transactions in high-risk regions.
  • Clear regulatory frameworks for DeFi platforms operating in sanctioned countries.
  • Collaboration with local communities to promote financial literacy and responsible crypto usage.

It's time to ditch the utopian vision of DeFi as a panacea and embrace a more realistic – and responsible – approach. The stakes are simply too high to ignore. If we don't act, we risk turning Yemen's DeFi surge from a perceived haven of freedom into a sanctioned-fueled disaster.