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Treasury Tackles DeFi: Assessing the Risks and Rewards of Decentralized Finance

Treasury Tackles DeFi: Assessing the Risks and Rewards of Decentralized Finance

The U.S. Department of the Treasury has warned criminals about using DeFi protocols but acknowledged that fiat currencies are still the preferred choice for money launderers and terrorists.

In a report titled “Illicit Finance Risk Assessment of Decentralized Finance,” the Treasury Department stated that ransomware attackers, scammers, and other criminals use DeFi services to transfer and launder their illegal earnings.

Many DeFi applications fail to adhere to America’s anti-money laundering and countering the financing of terrorism regulations, making them vulnerable to exploitation by criminals.

Despite this, the report also revealed that money laundering, proliferation financing, and terrorist financing activities are more commonly carried out using fiat currency or other traditional assets rather than virtual ones. DeFi is a sector in the crypto industry that aims to automate and democratize traditional finance through decentralized applications.

These tools make tasks like taking out a loan or earning interest on savings faster, more accessible, and without an expensive intermediary. Anyone can connect their self-custodial crypto wallet to a website and perform transactions without revealing any personally identifiable information to the tool’s developer.

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Blockchain networks are transparent, and transactions can be easily tracked, but proponents claim that tools should exist to allow these transactions to enjoy the same privacy as cash exchanges. However, DeFi tools are still experimental and prone to hacking, and criminals have used them for money laundering.

Tornado Cash, a DeFi app that enables anonymous Ethereum transfers, made headlines last year when the Treasury Department imposed sanctions on it due to alleged use by North Korean hackers. Critics argue that such sanctions infringe on people’s right to financial privacy.

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.

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