Decentralized Finance (DEFI) and Regulatory Challenges

Authors : Munisakhon Makhamadkhujaeva

Volume/Issue : Volume 8 - 2023, Issue 9 - September

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Decentralized finance (DeFi) built on blockchain technology has introduced groundbreaking innovation into the financial services ecosystem, but also poses novel risks related to money laundering, investor protection and systemic stability. This paper examines the nascent DeFi industry’s complex relationship with existing financial regulations through an international comparative analysis. DeFi's peer-to-peer transactional architecture using smart contracts falls outside the regulatory perimeter crafted around centralized intermediaries. While some jurisdictions have banned DeFi platforms, blanket prohibitions risk stifling beneficial innovation. More tailored governance solutions are required to address risks as DeFi evolves. Regulators worldwide are exploring strategies including relationally regulating influential platform developers, setting codes of conduct for open-source protocols, and embracing "RegTech" solutions harnessing blockchain data analytics. Evidence-based policy reforms should balance fostering DeFi innovation with addressing associated public interest concerns through coordinated international approaches. With astute regulatory modernization, DeFi's immense potential can be harnessed to expand financial access and efficiency equitably.

Keywords : Decentralized finance, DeFi, crypto-assets, blockchain, financial regulation, governance.


Paper Submission Last Date
31 - December - 2023

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In 1-2 Days

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