European Regulator Warns About Risks in DeFi Technology
ESMA, a key EU agency, raises concerns about DeFi, a new finance technology, highlighting significant risks and promising deeper exploration.
The European Securities and Markets Authority (ESMA), an important agency in the EU, has shared serious concerns about the risks connected with decentralized finance (DeFi). DeFi is a new kind of technology that lets people handle financial matters like loans with smart contracts, without needing banks or other traditional systems.
Although not many investors are using DeFi at the moment, ESMA is worried about the big risks they might face. These risks include the speculative nature of DeFi and the lack of a clear responsible party if things go wrong. There’s also the matter of operational and security issues to think about.
ESMA wants to understand more about DeFi and has promised to shareannual reports about it. While the technology of DeFi, using smart contracts, can reduce certain risks, the ESMA report points out problems like the high ups and downs in the crypto markets and the ability to remain anonymous, which can allow for questionable trading practices.
Regulating DeFi is a puzzle for policymakers globally, not just for ESMA. The International Organization of Securities Commissions thinks DeFi should have similar rules to regular finance. However, the EU Crypto Initiative suggests a specific approach for DeFi, saying that programmers should not be legally responsible just because their code could be used in improper ways. ESMA is serious about keeping an eye on DeFi, trying to understand it more, and keeping investors safe.
