CFTC outlines ways to mitigate DeFi risks amid ‘promising opportunities’


The United States Commodity Futures Trading Commission (CFTC), which regulates the U.S. derivatives markets, published a report detailing its recommendations for policymakers and industry players to mitigate risks associated with decentralized finance (DeFi)

Within its DeFi report, the CFTC’s Digital Assets and Blockchain Technology Subcommittee wrote that the space presents “promising opportunities.” However, the CFTC mentioned that it also carries complex and significant risks to the U.S. financial system, its consumers and the country’s national security. 

The CFTC outlined several ways to mitigate DeFi risks in the report. This includes increasing technical capacities and understanding DeFi, surveying the existing regulatory perimeter, identifying risks and vulnerabilities and evaluating potential policy responses to address risks. 

Evaluating the appropriate regulatory approach to accountability in DeFi. Source: CFTC 

The report also highlighted that policymakers should determine the most appropriate target and form of regulatory intervention. In addition, when identifying regulatory intervention targets, the CFTC recommended that policymakers consider where the intervention is likely to “impose the lowest costs” and generate the fewest unintended consequences to balance costs and benefits. 

Meanwhile, the derivatives regulator highlighted the need to foster engagement and collaboration with DeFi builders, regulatory efforts, and international standard setters. 

Related: Industry execs voice confidence in DeFi adoption despite security flaws

On Jan. 8, Commissioner Christy Goldsmith Romero said in a public remark that there’s a need to study digital asset-related issues or risk consequences. Romero stated: 

“From the time that I arrived at the CFTC, I have played a steady drumbeat that we need to study emerging issues related to digital assets or we could risk harmful unintended consequences.”

Romero added that she hopes the report can serve as a first step to start a conversation between policymakers and industry participants as DeFi still sits at the “center of illicit finance risks, cyber hacks and theft.”

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