CFTC Advisory Committee Recommends Better Understanding of DeFi

CFTC Advisory Committee Recommends Better Understanding of DeFi

UTC by Tokoni Uti · 3 min read
CFTC Advisory Committee Recommends Better Understanding of DeFi
Photo: Shutterstock

The CFTC advisory committee has voted that a report be delivered to the commission and other regulators to review the DeFi sector, as well as the current laws relating to it.

Decentralized Finance (DeFi) has been in existence for several years now and has seen billions of dollars in transactions thus far. Providing financial services without restrictions of traditional institutions has proven to be a hit and the sector is only waxing stronger.  Despite all its success, there is still limited understanding of DeFi among regulators and the mainstream financial world as a whole. This knowledge gap is one that the advisory committee for the Commodity Futures Trading Commission (CFTC) is looking to fill as it voted on January 8th to submit a report calling for a better understanding of DeFi.

CFTC: Why DeFi Knowledge Is Needed

In the Monday vote, the CFTC’s Technology Advisory Committee decided that a report will be submitted to the commission that will advise the government to better study DeFi. Besides this, the report will also call for the government to support the compliant development of the DeFi space.

This is significant because it shows just how prominent the DeFi sector has become. Just like crypto as a whole, DeFi was overlooked for years but as the financial stakes get higher, it is harder to ignore. On top of this, there is also the desire that DeFi remains compliant even as it grows.

The crypto industry and regulators have had a complicated relationship for years and this is only just starting to improve. But if DeFi compliance can be ensured as it gets bigger, perhaps later issues can be prevented. The report to be developed will be used by the US Congress, state legislatures, and regulators so its effects will be far-reaching.

One interesting thing about the report is that it seeks to review existing federal and state regulatory frameworks and determine the areas where DeFi is not accounted for and where laws need to be adjusted. A major issue that has arisen when it comes to cryptocurrency and regulations is the fact that for a long time, laws didn’t exist that considered the industry.

And when they did, they were lacking and didn’t take the nuances and lighting-speed development of crypto into account. This report therefore urges lawmakers to make sure that DeFi and all of its nuances are considered. And this appears to be only the first step in this direction.

As Justin Slaughter, a CFTC technology advisory committee member, said online regarding the matter:

“We have the first effort at surveying the opportunities DeFi promises and the risks that it could present. Policymakers can consider this a first cut at a map as they navigate policymaking for DeFi.”

As the report makes its way to the CFTC and other regulators’ desks, it will be interesting to see what changes are made.

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