Friday, May 20 2022

As the decentralized finance (DeFi) space grows, regulators are putting more effort into conducting research and providing a means to better understand the emerging industry.

Today, the International Securities Organization (IOSCO) released a report that aims to provide perspective on DeFi and highlight some areas that could be potential areas of concern for regulators. According to the report, DeFi is growing and many of its mechanisms are very similar to traditional financial markets.

Total value locked in DeFi. Source: IOSCO report

In addition to mirroring traditional finance, IOSCO mentions that many financial products, services, agreements, and activities in the DeFi industry sometimes overlap with more traditional financial operations.

For this reason, IOSCO has encouraged regulators to understand the implications of DeFi developments as they relate to their jurisdictions. As the DeFi market grows, IOSCO notes that “a granular and holistic understanding of the DeFi market” can improve the ability of regulators to create laws relevant to their areas.

In the report, IOSCO acknowledged that the DeFi industry has many advantages. IOSCO Chair Ashley Alder said, “DeFi is a new and fast-growing area of ​​financial services.” However, the organization also noted the risks it poses to users as the industry grows. Adler described the report as an overview of “key areas of concern for IOSCO.”

Alongside the report, IOSCO has created a working group that will cover the DeFi market. Tuang Lee Lim, the chairman of the newly formed task force, mentioned that:

“IOSCO’s decision to establish the task force signifies the determination of our members to take timely and coordinated policy action to appropriately address the risks arising from this growing field.”

Related: DeFi to Achieve Mass Adoption via Institutional Participation, Says DEX Founder

Meanwhile, a KuCoin Labs report published in February notes that DeFi players may opt for DAO governance as regulatory risks loom. The report mentions that DAOs can be recognized as legal entities and with it, the interest of the community can be prioritized.

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