Yesterday the Technology Advisory Committee (TAC) of the U.S. Commodity Futures Trading Commission (CFTC) published a 79-page report on policy recommendations for Decentralized Finance (DeFi). This paper does not represent the opinions of the CFTC because TAC participants are drawn from the DeFi sector, traditional finance (TradFi) and academia. Most press coverage stated that the CFTC demands that identity be implemented in DeFi. Identity was one aspect of an expansive report.
The identity headline perpetuates the myth that for DeFi protocols to be compliant, they simply need to implement know-your-client (KYC) procedures. That may protect against illicit finance, but that is only one of many DeFi risks and regulatory objectives. Others include:
In 2023, several regulators published papers on the topic of DeFi. Perhaps because of the industry’s involvement, this one is rather good. Despite the DeFi’s sector participation, it doesn’t pull any punches about the risks of decentralized finance and challenges in regulating it.
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