The International Organization of Securities Commissions (IOSCO) published a detailed report setting out how decentralized finance (DeFi) is quickly evolving to mirror conventional financial markets.
Ashley Alder, IOSCO chair and CEO of the Securities and Futures Commission (SFC) of Hong Kong, said in a statement: “DeFi is a novel and fast-growing area of financial services, and this report outlines key areas of concern for IOSCO.”
The IOSCO report offers a comprehensive review of the fast-evolving DeFi market, its new products, services and principal participants. It identifies some products and services which are novel to DeFi. But 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 report casts doubt on a key claim of DeFi innovators that it is a peer-to-peer marketplace with no centralized 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”. It also highlights the important role played by centralized trading platforms who often face substantial conflicts of interest.
IOSCO has also announced the establishment of a new task force.
Tuang Lee Lim, assistant managing director for Capital Markets of the Monetary Authority of Singapore (MAS) and chair of this new task force, said in a statement: “The report provides evidence of both the potential opportunities as well as significant risks that DeFi can bring to investors and markets. IOSCO’s decision to establish the task force signifies our members’ resolve to take timely and coordinated policy action to appropriately address the risks arising from this fast-growing area. I look forward to working closely with experts and colleagues on the task force in charting its work ahead.”