Regulators are starting to take a closer look at decentralized finance (DeFi) but these reports are suggesting at reasonable recommendations rather than outright bans. nikhileshde writes in this week's State of Crypto newsletter
both published reports assessing how well DeFi entities meet anti-money laundering regulations and how these entities and tools may be used in illicit finance.pointed to some of the major hacks and issues in DeFi over the past few months, such as North Korea’s use of DeFi to launder funds and other related concerns about how DeFi projects may not meet know-your-customer/anti-money laundering rules or just be really easy to steal from.
“This vulnerability can be compounded if the smart contracts are not written carefully or if they lack a mechanism for quick deactivation or alterations if a critical exploit is identified,” the U.S. report said. “As such, it is critical that the DeFi service identify and address vulnerabilities and potential exploits in open-source code.”
The U.S. Treasury Department also posed a number of questions for public feedback, including how it should determine if any given DeFi project is actually a financial institution subject to Bank Secrecy Act regulations. “The assessment finds that non-compliance by covered DeFi services with AML/CFT obligations may be partially attributable to a lack of understanding of how AML/CFT regulations apply to DeFi services,” the report said, referring to combating the financing of terrorism .
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