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Developers, influencers, and DAOs may fall under new DeFi proposed rules by IOSCO

The International Organization of Securities Commissions' new report targets DeFi for enhanced regulatory oversight.

Developers, influencers, and DAOs may fall under new DeFi proposed rules by IOSCO

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The International Organization of Securities Commissions (IOSCO), the leading international policy forum for securities regulators and recognized as the global standard setter for securities regulation, recently unveiled a report offering Decentralized Finance (DeFi) policy recommendations. The goal is to address potential risks to market integrity and investor protection.

In 2022, there were sudden and unexpected events in the crypto markets, like the FTX and Celsius bankruptcies, that caused a decline in asset values and led to the failure of DeFi platforms. These incidents resulted in harm to investors, losing millions in funds. The guidance recommends that governments and regulators establish uniform standards for traditional finance and DeFi to avoid such situations in the future. 

The report states decentralized finance (DeFi) activities are similar to traditional finance and that it is essential to look at them from an enterprise-level perspective to understand the roles and incentives of those involved. The recommendations suggest a lifecycle approach covering product development, deployment, governance, and operations. 

Regulators should adopt a functional approach to achieve outcomes equal to traditional finance, which means identifying “Responsible Persons” who have control or significant influence over DeFi products and services. These responsible persons may include developers, influencers, governance token holders, and others with design, administrative, or economic control, like DAOs (decentralized autonomous organizations).

Centralized crypto trading platforms and stablecoins are critical in enabling broader DeFi activity. Any adverse events affecting these platforms and stablecoins may spill into DeFi markets. Therefore, regulators must monitor interconnections between DeFi arrangements, crypto-assets, and traditional finance when assessing risks.

However, the challenge remains to find the appropriate regulations that protect the user without hindering innovation in a context where the US Securities and Exchange Commission (SEC) recently declined a Petition for Rulemaking filed by Coinbase, the largest crypto exchange in the US.

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