CFTC Committee Report Calls for Regulatory Collaboration in DeFi

• The pros and cons of DeFi rely heavily on the details of individual systems as per the report.
• One major issue with DeFi systems is the absence of clear lines of duty and accountability.

A report titled Decentralized Finance was produced by the Commodity Futures Trading Commission’s (CFTC) Technology Advisory Committee’s Digital Assets and Blockchain Technology Subcommittee.

Earlier, the Department of Treasury issued a report in April regarding the risks of illicit financing in DeFi. The report urged federal regulators to engage with the industry more to clarify the relevancy of applicable laws and regulations to DeFi services. The report also suggested additional regulatory actions and the publication of guidance based on this engagement. The beginning of such involvement is reflected in today’s report.

According to the recent report, the pros and cons of DeFi rely heavily on the details of individual systems. One major issue with DeFi systems is the absence of clear lines of duty and accountability, which is something that certain industry designs strive to avoid.

Comprehensive Strategy

There is no obvious way to protect victims, prevent illegal exploitation, or implement controls and changes when the network is under stress, which is one of the most concerning aspects of DeFi systems and a potential threat to consumers, investors, financial stability, and market integrity. 

In light of these dangers, the report concludes that the government and businesses need to collaborate quickly on DeFi development across regulatory and other strategic endeavors. In order to fight illegal financing, maintain market integrity, protect consumers and investors, and ensure financial stability, the paper offers extensive suggestions.

The report suggests targeted measures for anti-money laundering and digital identity in light of the persistent attacks on DeFi due to their lack of AML/CFT safeguards.  The report also suggests that lawmakers implement the more comprehensive strategy that is outlined in the suggestions made earlier.

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