Decentralized Finance, more commonly known as DeFi, has been a growing sector on the wild frontiers of digital finance throughout 2021 – we’ve covered it ourselves a number of times over the past six months. It’s a space that excites many adventurous investors, as the yields look incredibly promising. But with multiple high-profile scams and hacks marring the space even as almost $90 billion in Ethereum-based DeFi protocols have been invested, it was probably inevitable that it would increasingly look like the next target for regulatory action.
Regulators have already begun to take a tougher approach to the crypto industry worldwide this year, and the Wall Street Journal reported months ago that the SEC was probing decentralized crypto exchange Uniswap to get a sense for how investors use the platform.
Just last month, Michael Hsu, Acting Comptroller of the OCC, likened the practice to shady credit swap practices leading to the 2008 crash.
“I have seen one fool’s gold rush from up close in the lead up to the 2008 financial crisis,” Hsu said in his remarks. “It feels like we may be on the cusp of another with cryptocurrencies (crypto) and decentralized finance (DeFi). The 2008 crisis holds lessons that can help industry and regulators chart a better path and avoid repeating the mistakes of the past.”
And just last week, the global anti-money laundering watchdog group Financial Action Task Force released revised guidance on cryptocurrencies, calling for countries to work to identify individuals with outsized influence in DeFi markets.
It’s an opinion that makes a lot of the DeFi true believers pretty uncomfortable, but as some experts have pointed out , unless some degree of oversight is embraced, the market will likely be pushed to the fringes and never realize the potential its biggest investors so clearly see.