CFTC Lists Ways to Mitigate Defy Risks Among ‘Promising Opportunities’

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

@CFTCcgr Statement on CFTC Digital Assets and Blockchain Technology Subcommittee Decentralized Finance Report Release: https://t.co/wjO4mlyehx

— CFTC (@CFTC) January 8, 2024

In its DeFi report, the CFTC's Digital Assets and Blockchain Technology Subcommittee wrote that the space offers “promising opportunities.” However, the CFTC cited complex and significant risks to the U.S. financial system, its consumers, and the nation's national security.

In its report, the CFTC outlined several ways to address DeFi concerns. This includes building technical capabilities and understanding DeFi, examining the existing regulatory perimeter, identifying risks and vulnerabilities, and evaluating policy responses to mitigate risks.

Policymakers need to determine the most appropriate target and type of regulatory intervention, the report said. Additionally, when identifying targets for regulatory intervention, the CFTC advised policymakers to consider where the intervention would “impose the least cost” and produce the fewest unintended consequences to balance costs and benefits.

Meanwhile, the derivatives regulator highlighted the need to collaborate and foster collaboration with DeFi developers, regulatory efforts and global level regulators.

Related: Industry Voices Confidence in DeFi Adoption Despite Security Flaws

On January 8, CFTC Commissioner Christie Goldsmith Romero said that there is a need to study the issues or risks associated with digital assets in public opinion. Romero said:

“Since I arrived at the CFTC, I have played a constant drumbeat that we must study new issues related to digital assets or face harmful unintended consequences.”

Romero added that she hopes the report will serve as a first step in starting a dialogue between policymakers and industry participants, as Diffie remains at the “center of illicit financial risks, cyber hacking and theft.”

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