In a borderless, code-controlled world, who, what and how will control?

Hold on to your hat, boys and girls! This is a new world – a financial system without intermediaries, anyone can access 2 hours a day with just a mobile phone and wallet! Julien Bouteloup told me:

“At DFI, what we are creating is a completely decentralized technology, completely transparent, driven by mathematics. No one can lose it. ”

He continued: “We’re creating research papers, 40 years of research, basic research, creating separate maths and on-chains that no one can lose. You can’t lose it. GitHub didn’t exist in the 90’s. First , We are moving at the speed of light, because everything is open source, and everyone can participate.

Related: DFI Literacy: Universities receive decentralized finance education

A Navoom Insights report said in August that since 2020, the DFI market has grown by 40 factors, with a total value of about 61 61 billion in DFI (while current TVL is about 16 165 billion). Stablecoin’s capital, a significant part of DFI, increased to ১১ 112 billion in the first half of 2021.

There are huge profits but at the same time, DFI investors are also losing money because DFI is regulated, regulated, mediated, hosted or not legitimized by the central authority, only driven by smart contracts. So if a smart deal fails or is attacked, consumers have no remedy. Loretta Joseph, a global digital asset regulatory expert, tells me: “Regulators protect consumers and investors. In DeFi, there is no intermediary for your control, so it is completely P2P. The question is how it will be regulated in the future. People are going to be deceived. When people start to be deceived, the first thing they do is complain to the regulator.

Related: Will the regulation be compatible with crypto, or in crypto regulation? Experts answer

In fact, since 2019, DFI has lost about 5 285 million in protocol hacking and other exploitation attacks. And as experts say, most hacks were due to developer incompetence and coding errors. This is important if the sector is completely code dependent.

Related: The basic requirement is to update the blockchain security protocol

The challenge of control

Hester Pierce of the U.S. Securities and Exchange Commission said in an interview with Forecast News in February about DFI: It’s great for us. But it’s very difficult for us when we go inside and try to control how to do it. “

Regulated concerns revolve around the volatility of the crypto market, the risk of money laundering and terrorist financing, the uncontrolled nature of the market, and the lack of recourse to financial losses, in contrast to government-backed Fiat currency. Invalid tokens are exploding, creating excitement, confusion, legal questions and massive gains. NFT markets are also attracting large crypto transactions, which will probably annoy regulators who may see large money transactions as money laundering in the NFT. At a macro level, decentralization of the financial system and economic stability and the ability to protect the interests of consumers pose further challenges to regulators.

Related: Ineligible token from a legal point of view

DFI Decentralized Autonomous Organizations (DAOs) are popular as a means of transferring cryptocurrencies across various blockchains. It supports cryptocurrency and yield farming. The DAO, according to conservative estimates, oversees more than $ 543 million. In DAO, information technology governance and corporate governance are one and the same. The company is managed and operated by smart contracts, which are monitored and implemented by algorithms. The code both manages and executes. Should the algorithm fail, then who is responsible?

In a joint paper, dubbed “Blockchain, DLT and Smart Contract Control: A Technology Regulatory Perspective”, a team of researchers highlighted some key issues to consider: such as mining, core software developers, end users. They even increase the chances of government or regulatory players being potential participants; (2) Liability Identification Problems – Can the original software developers be taken into account ?; (3) challenges with the irreversibility and lack of update-capacity of smart contracts; And (4) the quality assurance and technology audit process required.

It is expected that exchange and wallet providers will be a focus for regulators. Decentralized exchanges allow users to trade directly from their wallets in P2P mode without intermediaries. The Global Money Laundering Watchdog Financial Action Task Force (FATF) has exchanged their views. Christopher Harding, Civic’s chief compliance officer, noted that the FATF’s proposed guidelines indicate that DPPs must comply with country-specific laws enforcing AFATF, AML, and counterterrorism financing requirements.

Related: The FATF targets DFIs with compliance with draft guidelines

A recent review of 11 major exchange platforms by the London School of Economics and Political Science found that only four businesses were under a significant level of control, so there is a clear gap. A project auditing is now required to be listed on any major exchange, but meaningful security does not end there. Toby Lewis, CEO of Novam Insights, puts it this way:

“Also, keep in mind that smart contracts can be attacked. Even if they are audited, it does not guarantee that it will be free from exploitation. Do your own research before you start.”

In an open source environment where projects are developing at an average compound growth rate of 20% per year, finding the right moment to control, where people are protected from risk but not limited to innovation, is a classic problem to solve. While some governments have used regulatory sandboxes (UK, Bermuda, India, South Korea, Mauritius, Australia, Papua New Guinea and Singapore) to achieve this balance, some governments have moved directly to legislation (San Marino, Bermuda, Malta, Liechtenstein).

Far from opposing control, the leading DFI statistics embrace it as part of the industry’s maturity. In an interview with Cointelegraph, Stanny Kulechev, founder of the DeFi nding platform Aave, suggested that peer review would be the future: Ultimately we need to find it as a community incentive for peer review and to empower more security experts in space.In the same article, Emiliano Bonassi reviews about DDA, a peer review forum to connect security experts with projects looking for reviews. Bonassi is an education. He sees the possibility of becoming an opportunity where people with special knowledge can contribute to the development of ecosystem safety.

Tan Tran, CEO of Vemanti Group, advised: “Going forward, I can see that platforms are rapidly being adopted with unauthorized financial products and services that anyone can use anywhere, but each will be controlled by a regulatory team that is centrally controlled. “It’s not about shutting down innovation. It’s more about preventing bad actors from exploiting irrational consumers.” The real winners in the economy will be those who think long-term and take the time to meet the needs of their products based on authority and professional service. ”

It certainly shows that exchanges and software developers can be in the spotlight of regulators. We hope regulators will look for ways to improve technology quality assurance processes and DFI governance, which can only be combined with industry. Mark Taylor stressed that regulators must continue to work in partnership with players in the crypto industry to protect consumers.

Julian Buteluup explains: “We’re actually creating everything in Defi, with traditional thematic financing, but here, faster, stronger, more transparent and accessible by everyone. It’s really different. It means anyone in the world can use technology and anyone. “There is no need to ask permission from the government. I think there is a need to push for innovation and build a better world.”

Who, what and how will we control this global 24/7, borderless market? This is a completely new ball game. Regulators and industry need to work together.

The opinions, thoughts and opinions expressed herein are the sole property of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Jane Thomason A thought leader in blockchain for social influence. He holds a PhD. From the University of Queensland. He has multiple roles in the British Blockchain and Frontier Technologies Association, Kerala Blockchain Academy, Africa Blockchain Center, UCL Center for Blockchain Technologies, Frontiers in Blockchain and Fintech Diversity Radar. He has written multiple books and articles on blockchain. She has been impressed in the Crypto Curry Club’s Top 100 Women’s Crypto, Women’s Partner Top 10 Digital Frontier Women of the Decade, Lattice’s Top 100 Fintech Influencer for SDGs, and Thinker 360’s Top 50 Global Thought Leader and Blockchain.