Following the IOSCO report, advocates for a biased approach

As various jurisdictions develop regulations on the digital asset sector, DeFi is still a tricky subject.

The International Organization of Securities Commissions (IOSCO) recently weighed in on the issue and recommended that governments identify the “accountable person” behind seemingly decentralized financial applications and subject them to the same regulatory oversight as conventional financial market participants.

The famous blockchain software company – Consensys – has encouraged the international standard setter to make it clear that some DeFi events may not have any “responsible person”.

Table of Contents

Toggle

Consensus depends on the “responsible person”.

In a recent blog post, Consensys argued that IOSCO's advice seems to suggest that in any DeFi arrangement or activity, it is always possible to identify a responsible person who may be subject to regulatory obligations. Decentralized systems either do not exist or do not exist.

This presumption, which limits online innovation to centralized models, according to Consensys, then prompted IOSCO to recognize that certain DeFi configurations lack a “responsible person,” like the EU to exempt “fully decentralized” setups from MiCA regulation.

He acknowledged that the line between centralized and decentralized finance is more of a spectrum than a hard line, but said the IOSCO recommendation would ease this distinction.

Thus, taking a binary approach to identifying responsible persons appears to encourage regulators to seek such a party “at all costs.” Consensus supported the need for a decentralized approach in determining responsible persons in DeFi. The organization added that the regulatory obligations should be consistent with the regulatory level, mainly aimed at the central beam end.

Various technical issues, such as governance, governance control, verbal data, code availability, blockchain decentralization and user interface differences, should also be evaluated when evaluating decentralization, according to consensus, and regulators should avoid imposing excessive obligations and instead consider them. General decentralized factors to guide their decisions.

Narrowing the definition of “responsible person”.

The definition of “responsible person” should be narrow, as applying traditional regulatory models is incompatible with DeFi. Its broad definition risks assigning responsibilities to individuals unable to implement regulatory changes, creating legal uncertainty and discouraging innovation. Consensys advises against rigidly identifying responsibilities, as this can hinder the path to decentralization.

Instead, the company proposes to explore alternative methods, such as encouraging decentralization and encouraging voluntary rules that allow DeFi participants to contribute globally.