Blog: Cryptocurrency : How to regulate the DeFi? World Economic Forum publishes guide for governments – Explica .co – Explica

Key facts:

The Davos Forum recommends combining existing laws with new and updated ones.

The publication explains the possibilities of action and the risks involved in these platforms.

The World Economic Forum has published a document on June 8 that explains the guidelines that governments should follow when regulating decentralized finance platforms (DeFi).

The text, titled Decentralized Finance (DeFi) Policy-Maker Toolkit, notes that DeFi activities “span many areas of financial regulation, including securities, derivatives, exchanges, investment management, bank custody, financial crime, finance. consumer, insurance and risk management ”, among others.

Therefore, a coherent and comprehensive strategy by a multidisciplinary entity or team is important, they point from the organism.

“An effective regulatory response for DeFi should include a combination of existing, updated and new regulation, tailored to current needs,” the publication says. Furthermore, while clarifying that there is a growing set of laws specific to digital assets, such as the European Union’s Markets in Crypto Assets (MiCA) guide, “many jurisdictions have yet to adopt custom legal frameworks.”

In this sense, the guide highlights that the measures that can be taken include:

Warnings for users and consumers Enforcement of existing laws Acceptance of regulations by DeFi platforms in exchange for measures to protect them, even if there is no legal obligation to do so Removal of regulations that are no longer necessary in the context of this activity Obtaining limited licenses Restrictive measures of certain activities in the DeFi sector New licenses that address the risks of the new categories designed for DeFi Issuance of guides with new legal frameworks.

In addition to those named, the World Economic Forum considers the possibility that no measure is necessary to regulate these platforms.

How to identify a DeFi according to the World Economic Forum. Source: World Economic Forum. Source: weforum.

Regarding the tools that governments already have to regulate these platforms, the also known as Davos Forum highlights specialized regulatory units (such as FinHub in the United States), which can share their knowledge with legislators; encouraging the flow of information, for example, through white papers; and regulatory sandboxes, which function as “test boxes” for companies to operate in a limited way and with reduced risks under the new regulations.

Likewise, the early clarification of the simplest cases to solve (in order to leave more resources to the more complex situations) and the coordination of actions of various government entities are added to this list.

The Implicit Risks of DeFi for the World Economic Forum

Regarding the potential risks involved the development of these platforms, the aforementioned document distinguishes five types of risks: financial, technical, operational, legal compliance and emerging. Broadly speaking, the first two categories have to do with the loss of user funds and the failure of the software that supports the transactions, respectively.

Meanwhile, operational risks are linked to human errors related to development and governance, while those of legal compliance refer to the potential use of these platforms for criminal activities or evasion of tax obligations. The last type of risks, emerging ones, are linked to problems in the financial macro system due to the integration of DeFi components.

This pronunciation of the World Economic Forum is one more step on the path of regulation of digital service providers, mainly those related to cryptocurrencies. In this sense, The publication of the new guidelines of the Financial Action Task Force is also expected in June. (GAFI) on digital assets and decentralized finance.

As CriptoNoticias reported in April, these new recommendations include the requirement to comply with KYC regulations (Know Your Customer, which means “Know Your Customer” in English) by these service providers. In addition, from a certain amount, it will be mandatory to identify the operators participating in a transaction.

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