MakerDAO’s Spark Protocol Blocks VPN Use; Privacy Advocates Cry Foul

MakerDAO’s recently launched lending platform, Spark Protocol, has courted significant backlash over its decision to ban VPN users on the front end. The initial motive was to prevent US-based users from accessing the platform. But it prohibits anyone from using a VPN regardless of whether or not they are situated within the US.

This has sparked strong reactions from privacy advocates.

War on Privacy

MakerDAO ramped up the yield on the DAI stablecoin from 3% to 8% as part of the implementation of the Enhanced Dai Savings Rate (EDSR).

Following the modifications in yield, on-chain data identified a peculiar transaction from an individual wallet involving the transfer of over 14.3 million DAO stablecoin into MarkerDAO by a single crypto participant. The transfer was speculated to have been conducted to take advantage of the 8% yield, which is offered through MakerDAO’s lending platform, Spark.

While Maker restricted users in the United States from accessing the crypto lending platform, what caught many by surprise was an update on Spark Protocol’s terms and conditions cautioning against employing VPNs to bypass the restriction.

The notification read,

“Use of the credit protocol functions of the site by persons who are currently or ordinarily located or resident in the United States is strictly prohibited, regardless of the user’s IP address. Utilizing a virtual private network or other method to conceal a user’s United States residence is also strictly prohibited and may result in permanent blocking of the use of the site in connection with blockchain addresses suspected of being tied to a United States residence.”

For the uninitiated, Spark Protocol was launched in May this year, which offered users up to 8% in annual returns by lending DAI. It was created as a soft fork of Aave v3 by a blockchain company rolled out by the Maker Foundation called Phoenix Labs.

Reactions

Popular DeFi analyst Chris Blec expressed his strong disapproval, emphasizing that it essentially functions as a comprehensive prohibition on VPNs worldwide, extending beyond the borders of the US.

Blec highlighted a clear distinction between blocking access for US residents and imposing a broader prohibition on individuals globally who utilize VPNs to safeguard their privacy. He characterized this broader move as a significant encroachment on the concept of privacy, likening it to an active campaign against the fundamental notion of personal privacy.