As the decentralized finance (DeFi) space grows, regulators are putting more effort into researching and providing funds to better understand the emerging industry.
Today, the International Securities Organization (IOSCO) released a report that aims to provide insight into DeFi and highlight some areas that may be of concern to regulators. According to the report, DeFi is constantly growing and many of its mechanisms are very similar to traditional financial markets.
In addition to reflecting traditional finance, IOSCO notes that many financial products, services, arrangements, and activities in the DeFi industry sometimes overlap with more traditional financial transactions.
In this regard, IOSCO urged regulators to understand the implications of the development of DeFi in relation to their jurisdictions. As the DeFi market expands, IOSCO notes that “a detailed and holistic understanding of the DeFi market” can enhance the ability of regulators to create laws relevant to their areas.
In the report, IOSCO acknowledged that there are many benefits to the DeFi industry. IOSCO Chairman Ashley Alder said that “DeFi is a new and rapidly growing area of financial services.” However, the organization also noted the risks it poses to users as the industry evolves. Adler described the report as a summary of “key areas of concern for IOSCO”.
Along with the report, IOSCO has also set up a task force that will cover the DeFi market. Tuang Li Lim, chairman of the newly formed task force, mentioned that:
“IOSCO’s decision to establish a task force is indicative of our members’ determination to take timely and coordinated political action to properly address the risks posed in this rapidly growing area.”
Related: DeFi Will Achieve Mainstream Adoption Through Institutional Participation, DEX Founder Says
Meanwhile, a report by KuCoin Labs published in February notes that DeFi players may choose to manage DAOs as regulatory risks approach. The report mentions that DAOs can be recognized as legal entities and that the interests of the community can be prioritized.