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Global regulation needed amid "significant" DeFi risks, says Global Blockchain Business Council

Crypto is stealing all the regulatory limelight, but what about DeFi?

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Sandra Ro/GBBC.

The Global Blockchain Business Council (GBBC) has called for industries and agencies to join forces in order to create a global regulatory approach to the nascent decentralised finance (DeFi) industry. 

In its latest Digital Finance Report, the GBBC said on Tuesday that DeFi has outlined a "clear need" for policy-makers and regulators to "harmonize" approaches on a global scale.

"There is a growing consensus that in the short to medium-term, DeFi itself will not be regulated per se", the report claims. 

Since the start of the year, jurisdictions across the globe have unveiled or added to their existing regulatory frameworks for crypto-assets. 

However, regulation has mostly pertained to the crypto industry as a whole which may well impact the DeFi market, rather than the DeFi industry itself. 

The GBBC's concerns echo the sentiment across the industry, with experts concerned about the lack of serious regulatory attention granted to DeFi. 

According to research by Elliptic, the total value locked in DeFi services has grown 1,700 per cent to £206bn over the past year. Yet, as the industry takes the world by storm, so have nefarious undertakings. In 2021, £10bn was stolen from DeFi platforms. 

Theft due to protocol failure has formed the bulk of the stolen funds, with decentralized applications on the Ethereum blockchain accounting for £7.1bn the majority of the losses. 

In essence, it is DeFi's fundamental proposition that has given traditional financial institutions and regulators a headache – almost complete anonymity for entities and individuals, and a lack of reporting transparency across platforms. 

"The difficulty of regulating DeFi is that our existing financial services legislation is built around having an intermediary / centralised entity that we can hold accountable. In pure DeFi, this is not the case", Lavan Thasarathakumar, the director of government and regulatory affairs at the GBBC, told AltFi . 

According to Thasarathakumar, most regulatory approaches to date have focused on finding "someone to hold accountable". He suggests that regulators should instead turn to "embedded regulation and regulatory nodes". 

At present, only Abu Dhabi's Financial Services and Regulatory Authority (FSRA) have taken steps to regulate DeFi. In April, the FSRA published a discussion paper on DeFi, with intent to "foster" dialogue among industry participants and regulators alike. 

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