DeFi Is Next On The List For Regulators

Decentralized finance, or DeFi, is a trend in cryptocurrencies that first started gaining traction in 2020. It’s been called the Wild West of crypto, as hoards of computer programmers try to bring traditional financial products such as loans to the blockchain. But with major hacks and scams plaguing the space this year, regulators are becoming increasingly concerned about the risk of crime and harm to consumers. Almost $90 billion has been deposited into Ethereum-based DeFi protocols, and regulators have already started taking a tougher approach to the crypto industry. Earlier this year, the U.S. Securities and Exchange Commission probed decentralized crypto exchange Uniswap. In September, acting U.S. Comptroller of the Currency compared DeFi activity to the controversial practices in Wall sTreet that led up to the 2008 financial crisis. One of the concerns is DeFi services marketing themselves as decentralized when that may not be the case. Last week, global anti-money laundering watchdog the Financial Action Task Force released revised guidance on cryptocurrencies. Part of the rules call for countries to identify individuals with control of sufficient influence over DeFi programs. This means some founders of DeFi start-ups could potentially become subject to rules requiring they provide information on originators and beneficiaries in the transfer of funds. While it’s too early to say how regulators will respond, it is clear officials are supportive of the benefits blockchain technology can offer, but they are not ready to trust the sector’s ability to manage financial crime risks.