Report: Policymakers should explore decentralized finance regulatory options

Policymakers should identify and evaluate the range of potential policy responses to the risks posed by decentralized finance, or DeFi, according to a new report by a Commodity Futures Trading Commission advisory committee.

The report by the Technology Advisory Committee concluded that DeFi offers “promising opportunities and complex, significant risks” to the U.S. financial system, consumers and national security. The risks come from the absence of effective regulation, enforcement and compliance for many DeFi products—such as cryptocurrency—which have left them vulnerable to fraud, mismanagement and serious regulatory violations, the committee said. TAC is one of five advisory CFTC committees, with representatives from both the private and public sectors.

“A central concern relating to DeFi systems is the lack of, and some industry designs to avoid, clear lines of responsibility and accountability… Policymakers have little incentive, and in fact would be remiss in their duties, to permit the growth of financial ecosystems with no mechanisms to ensure necessary protections for their consumers, nations and societies,” according to the report.  The committee also concluded that federal agencies cannot bring the DeFi space into compliance through enforcement alone, “but must also determine how to best use long-leveraged authorities to drive positive developments in the ecosystem.”