Jun 11, 2021
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World Economic Forum (WEF) Shows Toolkit for Regulators

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The World Economic Forum (WEF) published a white paper DeFi toolkit for policymakers to examine the opportunities and risks.

The regulation of Decentralized Finance (DeFi) is rightly considered a difficult undertaking. Smart contracts offer many advantages. However, they also attract many black sheep who use the great potential for fraudulent purposes. Still, many DeFi supporters would like to enable financial inclusion for the estimated 1.7 billion people in the world who do not have a bank account. Therefore, the World Economic Forum (WEF) has now published a DeFi framework in cooperation with the Wharton School of the University of Pennsylvania. It is intended to help political decision-makers evaluate DeFi and to design possible regulatory measures.

The WEF report identifies some risks to be aware of with DeFi. For example, policymakers should be aware of “market risk”. This occurs in particular if the asset falls for various reasons, but all of which are part of the laws of the market. There is also always a certain “liquidity risk”: the risk that not enough funds are available to cover asset withdrawals.

The white paper thus serves as a kind of toolkit. It aims to provide an overview of the various aspects of the relatively young DeFi sector within the broader crypto ecosystem. However, the WEF does not intend with the paper to recommend specific policy measures for regulators. The document says that instead, it focuses more on describing what problems DeFi can solve. It also wants to draw attention to certain areas where regulators may have some catching up to do.

DeFi will raise further questions about whether regulators have the right tools to deal with evolving market activity and how they can assert their jurisdiction over a range of technologies and actors that are inherently borderless and global,

it says in the document.

The WEF is the first intergovernmental body to deal with DeFi. Earlier this year, the Financial Action Task Force (FATF) — an international supervisory authority for money laundering — published a proposal for regulatory guidelines on DeFi. Regulators are paying increasing attention to the area, especially in the wake of the recent bullish development in the crypto market. Jehudi Castro Sierra, Digital Transformation Advisor to the Colombian Presidency, said his country will be the first to use the toolkit to develop policies and regulations related to DeFi in Latin America.

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Article Categories:
Bitcoin · Crypto · cryptocurrency · DeFi · Ethereum

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