Regulators Target DeFi: Securing the Future of Digital Finance
On Thursday, global securities regulators introduced their initial strategy to establish accountability within "decentralized finance" (DeFi) and fortify market stability.
DeFi platforms enable lending, borrowing, and savings with digital assets, using blockchain technology to bypass traditional financial gatekeepers.
Recent incidents, such as the FTX crypto exchange collapse and Terra USD stablecoin issues in 2022, spotlighted how disruptions in the crypto market can trigger substantial outflows from DeFi, leading to a sector contraction from $180 billion in late 2021 to around $40 billion today. IOSCO, the global security regulator body, also raised concerns about money laundering in DeFi.
Tuang Lee Lim, chair of a fintech task force at IOSCO, dispelled the misconception that DeFi is entirely decentralized, noting that its stakeholders and mechanisms often mirror traditional finance, making it possible to identify “responsible individuals” regardless of the operational model.
IOSCO acknowledged the scarcity of standardized DeFi data because market participants used pseudonymous addresses. In response, they proposed a framework to ensure investor protection, market stability, risk management, transparent disclosures, and international regulatory cooperation across 130 jurisdictions.
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To gain a comprehensive understanding of DeFi, regulators are encouraged to employ existing or new regulatory frameworks to identify individuals and entities involved.
A public consultation for these proposals, aligning with IOSCO’s May efforts to regulate cryptoassets, will run until mid-October, with the framework expected to be finalized by the end of 2023.
IOSCO member nations commit to following agreed recommendations, with some, like the United States, already exploring DeFi’s compatibility with existing securities regulations.
Alexander Stefanov
Reporter at CoinsPress
Alex is an experienced finance journalist and a cryptocurrency and blockchain enthusiast. With over five years of experience covering the industry, he deeply understands the complex and constantly evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His passionate approach allows him to break down complex ideas into accessible and insightful content. Follow up on his content to be up to date with the most important trends and topics - stay ahead of the curve with CoinsPress.
