Call for policy cooperation on DeFi regulation
On the 8th, the U.S. Commodity Futures Trading Commission (CFTC) Digital Assets/Blockchain Technology Subcommittee released a comprehensive report on DeFi (decentralized finance). The purpose is to provide information to authorities considering policy regarding digital assets, including the U.S. Congress, state legislatures, and the CFTC.
CFTC Commissioner Christy Goldsmith Romero, the report’s lead author, said DeFi is at the center of illicit financial risks, cyberhacks, and theft, and emphasized the need for “policy development and industry dialogue.” He recommends improving DeFi knowledge, increasing the speed and effectiveness of enforcement, evaluating existing federal and state DeFi regulations, and identifying where regulations need to be expanded to address risks.
Justin Slaughter, director of policy at U.S. cryptocurrency investment firm Paradigm and a member of the CFTC Technical Advisory Board, called the report the most comprehensive review of DeFi by the U.S. government. He said that although the report’s recommendations do not have legal force, they are an important step in DeFi policymaking.
Ari Redboard, vice chair of the CFTC’s Technical Advisory Committee, also pointed out that regulatory discussions regarding crypto assets (virtual currencies) to date have focused on centralized exchanges. While the U.S. Congress is working on regulating stablecoins, he emphasized that key parts of the debate regarding DeFi have yet to move forward.
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What is DeFi?
DeFi (decentralized finance) refers to financial services or systems that utilize blockchain and are performed without a central administrator.
▶️Virtual currency glossary
DeFi is a stage for fraud and attacks
In 2023, 751 security incidents resulted in the loss of digital assets totaling over $1.8 billion. Although the amount and number of DeFi hacks have decreased by about half compared to 2022, it remains a significant issue, with six incidents resulting in losses of more than $100 million. The biggest DeFi hack of 2023 occurred on Mixin Network, where around $200 million was stolen.
Many attacks, including Mixin, are carried out by exploiting third-party vulnerabilities, such as improper storage of private keys used to manage a project’s wallet.
It highlights the importance of comprehensive security audits in DeFi programs, which should not only focus on finding vulnerabilities in smart contracts, but also consider the business logic and security practices of the entire project.
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