On Thursday, global securities regulators unveiled their initial strategy to establish accountability in the “decentralized finance” (DeFi) space and strengthen market stability.
DeFi platforms enable activities such as lending, borrowing and saving with digital assets by using blockchain technology to bypass traditional financial gatekeepers.
Recent incidents such as the collapse of crypto exchange FTX and the problems with the Terra USD stablecoin in 2022 have highlighted how disruptions in the crypto market can cause significant outflows from DeFi, leading to a shrinking of the $180 billion sector at the end of 2021. to about $40 billion today. IOSCO, the global body of securities regulators, has also raised concerns about money laundering in the DeFi sector.
Tuang Lee Lim, chair of the fintech working group at IOSCO, dispelled the misconception that DeFi is entirely decentralized, noting that the stakeholders and mechanisms often mirror traditional finance, making it possible to identify “persons in charge” regardless of the operating model.
IOSCO acknowledged that there is a lack of standardized DeFi data due to market participants using pseudonymous addresses. In response, they proposed a framework to ensure investor protection, market stability, risk management, transparent disclosure and international regulatory cooperation across 130 jurisdictions.
To gain a holistic view of DeFi, regulators are encouraged to use existing or new regulatory frameworks to identify the individuals and entities involved.
Public consultation on these proposals, aligned with IOSCO’s efforts in May to regulate crypto assets, will continue until mid-October, with the framework expected to be finalized by the end of 2023. IOSCO member countries are committed to following the agreed recommendations, with some of them, such as the US, already exploring the compatibility of DeFi with existing securities regulations.
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2023-09-09 16:03:06
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