“Global Regulators Outline Blueprint for Accountability and Stability in Decentralized Finance (DeFi)”

International securities regulators have revealed their initial framework to hold players in the “decentralized finance” (DeFi) sector accountable for their actions and ensure stability. of this emerging field.

DeFi platform allows users to participate in lending, borrowing and saving activities with digital assets, using blockchain technology to bypass traditional financial intermediaries such as banks and stock exchanges .

According to IOSCO, the global umbrella organization for securities regulators around the world, the collapse of crypto exchange FTX and stablecoin Terra USD in 2022 represented disruption in a segment of the crypto market can cause massive capital outflows from DeFi applications.

Thanks to such events, the DeFi sector has grown from about $180 billion at the end of 2021 to about $40 billion today. Additionally, regulators have identified instances of money laundering in the DeFi space. The president of IOSCO’s fintech working group, Tuang Lee Lim, has cleared up the misconception that DeFi is completely decentralized and managed by autonomous code or smart contracts. Instead, he pointed out that various DeFi stakeholders are adopting roles and mechanisms reminiscent of traditional finance.

In fact, regardless of the operating model of the DeFi agreement, the ‘responsible people’ can be identified, Lim said.

One of the challenges facing regulators is the lack of standardized data on DeFi, which is exacerbated by the use of multiple anonymous addresses by market participants to conceal their activity. Surname.

To address these concerns, IOSCO has proposed a regulatory framework designed to ensure investor protection, market stability, risk management, clear information and cross-border cooperation at 130 member jurisdictions. Regulators are encouraged to take advantage of existing laws or introduce new ones as needed to obtain comprehensive information about DeFi, including the identification of individuals and entities involved. A public consultation on these proposals, in line with IOSCO’s May recommendations for self-regulating crypto assets, will last until mid-October. The final framework is expected to appear. by the end of 2023.

IOSCO member states are committed to implementing agreed recommendations, with some, such as the United States, already exploring how DeFi aligns with applicable securities regulations.