In the ongoing deadly conflict between Hamas and Israel, it has been observed that Hamas has been actively raising funds in the form of cryptocurrency to support its terrorist organization. However, on October 10, 2023, the Israeli authorities seized all the Hamas-linked crypto accounts due to their misuse of the potential of DeFi in this ongoing war.
On October 11, 2023, the European Security and Markets Authority (ESMA) along with the European Union’s financial markets supervisory authority released a report that focuses on the risks and benefits of DeFi.
ESMA highlights the benefits and risks of DeFi
In this report, it was evident that ESMA praises the benefits of DeFi more than traditional financials due to the recent developments in financial products, including transaction speed, more security, and transaction costs. However, the report also emphasizes the “major risks” associated with DeFi, as the authorities stated that the primary risk is liquidity due to the highly speculative and volatile nature of the crypto assets.
ESMA authorities also compared the volatility of Bitcoin and Ethereum with the Euro Stoxx 50 index for 30 days, and they found that the volatility of cryptocurrencies is significantly 3.6 and 4.7 times higher than the Stock index.
DeFi losses soar, prompting calls for enhanced security
On September 1, losses caused by exploitation, hacks, and scams in DeFi have been significantly high and also marked over $1 billion in 2023 as reported by Todayq News.
ESMA believes that DeFi should either eliminate all counter risks associated with it or minimize these risks, as it operates on the smart contract. If not, there may be some errors or issues in smart contracts. According to ESMA, DeFi is highly vulnerable to scams and other illicit activities, this might be due to the lack of KYC protocol.
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However, the report highlights that DeFi users face significant risks as there is no clear entity to hold the responsibility, and there is no such platform to report or address problems. The report concluded that crypto and DeFi, do not pose major risks to financial stability, as they are relatively small and not closely connected to traditional financial markets.