On 24 March 2022, the International Organisation of Securities Commissions (IOSCO) published a report presenting the issues related with the rapid development of decentralised finance (DeFi).

The IOSCO report includes a comprehensive overview of DeFi markets, new products, services and their main participants. It identifies some products and services which are novel to DeFi. Most of the new services which are emerging replicate more traditional financial services and activities, but with weaker regulation and increased risks for investors.

The IOSCO report casts doubt on a key claim of DeFi innovators that it is a peer-to-peer marketplace with no centralised insiders in control. By looking in detail at how DeFi works, it identifies central actors who, it concludes, often retain control – for example, through the distribution of ‘governance tokens’. IOSCO also highlights the important role played by centralised trading platforms which often face substantial conflicts of interest.

IOSCO has announced the establishment of a new task force to probe into DeFi markets. Tuang Lee Lim, Assistant Managing Director of the Monetary Authority of Singapore (MAS), became the chair of this task force.

A recent report found that DeFi fraud and theft reached USD 10.5 billion in 2021.

Sources:

• https://www.iosco.org/library/pubdocs/pdf/IOSCOPD699.pdf
• https://www.finextra.com/newsarticle/39938/financial-regulators-probe-defi-markets
• https://www.elliptic.co/resources/defi-risk-regulation-and-the-rise-of-decrime