The Financial Stability Board (FSB), along with other international standard-setters, will decide how decentralized finance (DeFi) should be regulated, according to a report released Feb. 16.
The FSB will consider the extent to which its proposed policy recommendations for the crypto sector need to be strengthened to address DeFi-specific risks, the report said. We will also work with other international standard-setters to explore ways to fill data gaps in measuring and monitoring the interconnectedness of DeFi and traditional finance.
“DeFi does not differ significantly from traditional finance in its functioning or the vulnerabilities to which it is exposed,” the FSB said in a press release.
As companies and banks stepped into the space with the crypto boom that began in 2021, regulators around the world have been watching how crypto assets interact with the real economy. Since then, billions of dollars have been wiped from the crypto market, followed by the collapse of token issuer Terra, crypto lender Celsius Network and crypto exchange FTX. The market turmoil has only prompted regulators to take better protections for those who invest in crypto assets.
The FSB is no exception. In December, it announced a more detailed look at the risks and vulnerabilities inherent in DeFi, and in October it proposed a framework for international regulation of crypto activities. The FSB said on February 16 that it plans to publish its final crypto regulatory framework in July.
“The FSB will impose additional prudential and investor protection requirements, or strengthen enforcement of existing requirements, on these crypto-asset types and issuers, thereby reducing the risks inherent in closer interconnection. could be mitigated,” the report said.
Although the report notes that there is limited interaction between DeFi, the real economy, and traditional finance, “if the DeFi ecosystem grows significantly, the reach will expand,” the FSB said, adding that the DeFi market and Additional work will be carried out to analyze the implications of asset tokenization, which it says may increase its relevance to the real economy.
The FSB noted that operational weaknesses, a mismatch between liquidity and maturity, and leverage make the DeFi sector vulnerable.
｜Translation: coindesk JAPAN
｜Editing: Toshihiko Inoue
｜Original: Global Standard Setters Will Team Up to Tackle DeFi Regulation: FSB