ESMA raises alarm about the serious risks of decentralized finance (DeFi) and grapples with the challenge of crafting regulations.
The agency vowed to delve deeper into this burgeoning market and pledged to provide annual reports on the sector.Policymakers are grappling with the challenge of crafting regulatory frameworks for a field that operates without centralized intermediaries, unlike traditional entities like banks or securities exchanges.
These concerns stem from the highly speculative nature of many DeFi arrangements, operational and security vulnerabilities, and the absence of a clearly identified responsible party.The Paris-based agency vowed to delve deeper into this burgeoning market and pledged to provide annual reports on the sector. DeFi operates through smart contracts, automating financial services like loans.
In the report issued on 11 October, ESMA highlighted the diverse nature of smart contracts used in DeFi, ranging from financially motivated Ponzi schemes to operational memory management.
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