With a surge in scams and fraud in the DeFi world over recent months, it’s vital for regulators to step in. DeFi is rapidly evolving, and investors are getting involved. To keep things safe, regulators need to get to work.
Recently, the Autorité de Contrôle Prudentiel et de Résolution (ACPR), a division of the French Central Bank, recently concluded a public consultation on the regulatory framework for decentralized finance (DeFi). This consultation, which spanned over two months from April to May 2023, generated remarkable insights into the continuance of centralized practices within the DeFi industry.
As a result, the ACPR believes that the term “disintermediated” finance is more fitting than “decentralized” finance.
Structural Concerns and Operational Risks
The ACPR highlights the contradictory concentration in DeFi, particularly in terms of the physical infrastructure hosting blockchain nodes. This issue mainly revolves around the participation of cloud service providers, who play a pivotal role in the system’s functioning.
Continued Deployment on Public Blockchains
The majority of survey participants favor using public blockchains for DeFi, rather than private ones. They also stress the importance of routinely checking and verifying these public blockchains. Moreover, there is strong agreement among respondents for regulating middlemen and certifying smart contracts.
The ACPR recognizes the need to establish rules for the certification of smart contracts, ensuring their reliability and security. Additionally, defining a government framework that safeguards the interests of DeFi customers is viewed as required. Lastly, it also emphasizes the importance of implementing measures that bolster the underlying blockchain infrastructure supporting DeFi.
ESMA’s Perspective on DeFi
The European Securities and Markets Authority (ESMA) also contributed to the discussion on DeFi through a comprehensive report released on October 11. The report acknowledges the potential benefits of DeFi, including enhanced financial inclusion, innovation in financial products, and improved transaction speed, security, and cost efficiency. However, it also highlights the significant risks associated with DeFi.