The UAE’s financial center regulator, Abu Dhabi Global Market (ADGM), has released a discussion paper asking stakeholders to comment on the regulation of decentralized finance (defi). The document also clarifies the regulator’s position on the anonymity of defi transactions.
The document is not a guide for financial institutions
The release of the document occurred against the backdrop of an active growth in the defi space, both in terms of the number of users and the cost of such transactions, the FSRA acknowledges in the document.
According to the regulator, the document will serve as “a starting point for a dialogue on how Defi will ultimately be regulated.” FSRA, however, clarified that the document is not “guidance” for financial institutions. Instead, the document contains the regulator’s view of the likely medium-term direction over five to ten years.
In addition, the discussion paper contains what it calls “high-level regulator policy positions on how FSRA might consider regulating Defi.” The document also describes what a future regulatory framework for defi would look like.
Defi Regulation Inevitable
In a statement following the document’s release, Emmanuel Givanakis, CEO of FSRA, said:
DeFi is a new part of the global financial ecosystem that promises to deliver more efficient and specialized financial services. To realize this potential, the risks posed by DeFi must be identified and appropriately addressed. We are pleased to share our views on DeFi and its potential future direction as part of an ongoing discussion in the community, together with industry practitioners.
Givanakis added that stakeholder input will help the regulator make informed policy choices that will, in turn, address the risks associated with decentralized financing.
While FSRA has said it will consider stakeholder input, the regulator argues elsewhere in the document that regulation of defi is inevitable. The regulator also insists that “maintaining the anonymity of DeFi participants will become increasingly untenable in the medium term.”
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