The rising popularity of the DeFi sector is forcing financial watchdogs to make efforts at researching and understanding the DeFi space and come up with appropriate regulatory policies. On Thursday, the international organization of securities commission (IOSCO) released a report detailing their opinion about DeFi, including aspects of this space that should be of significant concern for regulators.
Highlights From The Report
First, the report remarked that DeFi’s growth and operations are quite similar to traditional financial markets. The report also stated that some DeFi-related products and services are exactly like that of traditional financial services. Thus, the international securities body suggested that financial watchdogs must keep abreast of DeFi growth pertaining to their locality.
IOSCO remarked that regardless of the expansion of the DeFi space, regulators must have a thorough understanding of the DeFi sector. This proper understanding would enable them to establish regulatory policies that are relevant to their jurisdiction. However, the international securities body acknowledged that DeFi has its merits. IOSCO chief, Ashley Alder, remarked that “DeFi is a unique and fast-evolving financial service market.” but the body warned that the fast development of the sector also brings about certain risks.
IOSCO Seeks To Monitor The DeFi Space
Adler noted that the international body published this report to highlight crucial aspects of concern for IOSCO and its members. The report also mentioned that IOSCO had formed a committee headed by Tuang Lee Lim to oversee developments and challenges of the DeFi sector. Also, the committee has the authorization of the agency to probe crypto-related scams that currently pervade the social media space.
Speaking after his selection as the head of the new committee, Lee Lim opined that “this committee is tasked with taking appropriate and organized action to help our members deal with any risks associated with this fast-rising sector.”
Perhaps, IOSCO’s remarks and actions may be why the KuCoin labs report released last month predicted that DeFi market players might start choosing DAO governance. It cited the increasing pace at which regulators are moving to create various policies for that sector that may not favor its players. The KuCoin labs report states that DAOs are legally recognized entities. Thus, there can be a priority on community interest.
Doubts About DeFi’s Decentralization Claims
More than 90% of the global securities markets (in over 125 regions) are regulated by IOSCO members. Two of its most popular members are America’s SEC and UK’s FCA. Part of the IOSCO report claims that no financial market can be completely decentralized, adding that there will always be those who would be responsible for what happens in the market.
IOSCO also doubted the claims of collateralization of stablecoins stating that it is often unrealistic for users to redeem their assets at face value. This report shows that IOSCO and the BIS share similar opinions regarding the DeFi sector. The latest CoinMarketCap data showed that the DeFi market cap surged by 19.35% in the past 24 hours and is now at $143.97B.
James Thompson