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GDF calls for the development of prototype regdao

GBBC Digital Finance (GDF), the leading industry body championing the adoption of best practices for digital finance, is calling for regulators, policymakers, and the DeFi industry to collaborate on the development of digitally-native regulation for decentralised markets.

This comes as GDF releases its report, DeFi: Moving the Dialogue on Standards and Regulation Forward (please see attached a summary of the report and you can download the full report from here The report takes account of recent agency publications, including from the International Organization of Securities Commissions (IOSCO), Organization for Economic and Commercial Development (OECD), and Bank of International Settlements (BIS), and proposes solutions to building proportionate regulation for DeFi activities.

Following the recent downturn in cryptoasset markets, the vulnerabilities of parts of DeFi ecosystems have been exposed. In the absence of regulation, the report advocates for the development of industry standards that will embed trust and predictability into the sector.

The report also calls for a co-regulatory environment in which industry can work with agencies on risk identification and assessment to develop appropriate and sustainable principles. Regulators and industry have a unique opportunity to take advantage of algorithmic consensus models, and explore the design and operation of regulator and compliance nodes in the form of RegDAO.

The report is the product of substantial work throughout 2021-2022, including the contributions of many industry leaders who took part in the GDF DeFi Knowledge Series, presented exclusively to the GDF Regulator (Only) Forum, which includes over 30 regulatory agencies.

Steven Becker, CEO of UDHC and former President of MakerDAO, says “The world's economic engine is driven by financial and technological innovation, making DeFi the natural next step.”

John Salmon, Partner Global Lead – Blockchain and Digital Assets at Hogan Lovells, says, “The evolution of DeFi creates a significant challenge for policymakers and regulators around the world. Developing a proportionate and tailored regime will be difficult, particularly given the unique issues of identifying an entity that has sufficient control over the operation of the relevant service or provision of the DeFi product, which can be brought within the regulatory scope, as well as the jurisdictional issues of doing so. This shows the importance of GDF and the industry working together with regulators and policymakers to achieve the goal of developing a proportionate regulatory regime which works in this area.”

Justin Wright, COO & CFO of YieldApp, says “Recent events have highlighted the importance of risk management in the digital asset space. The opportunities in DeFi are immense and multi-faceted, but if the industry is to reach its full potential, it must embrace risk analysis and work together with global regulators to ensure the value of this infrastructure innovation can be truly realised”

GDF DEFI REPORT: DeFi: Moving the Dialogue on Standards and Regulation Forward


- This report is a call to action for both industry and regulators to better collaborate on the next steps for moving forward responsible innovation in the DeFi space. GDF is seeking to engage regulators, policymakers, and industry in a co-regulatory model

- Exploring the constituents of the DeFi ecosystem helps us to understand how the activity is different to other financial sectors: the lifecycle of a DeFi project; functions of DAOs, smart contracts, and stablecoins; mechanisms of liquidity development, lending, and trading; settlement processes, and data provenance

- The report outlines the unanswered questions, including degrees of decentralization, legal identity, the issuance and maintenance of stablecoins, smart contract and code auditing, and the provenance of data, among others.

- It highlights the difference between the developer and the operator of code, and the need to ensure that regulation is ready for Web 3

- The report summarizes the key issues identified in agency reports, drawing from the IOSCO, OECD, and BIS reports; including risks related to disclosures, the duty of care in outlining risks to the user; price volatility, conflicts of interest, slippage and arbitrage risks, and the use of highly leveraged strategies; illicit activity risks

- Expected oncoming regulation relates mostly to components of the crypto assets industry — which may well impact the DeFi market — rather than DeFi per se

- This is part of a wider conversation of digitalization and regulating technology, where regulators are developing principles for algorithmically-led decision making

- The report suggests a two track approach to moving the dialogue forward:

Track 1 – Short Term Industry Transition: Industry Standards

In the absence of regulation specific to DeFi (acknowledging that oncoming regulation for components of the digital asset market will likely impact the market), the industry must coordinate to establish governance and investor protection standards, as well as industry-led monitoring to demonstrate that it can operate to high standards of trust and predictability.

This can be more rapidly expedited through analysis of standards for wholesale markets and adopting existing standards and principles to connect the dots to emerging policy and regulatory frameworks.

Track 2 Medium to Long Term: A Co-Regulatory Model

Industry and agencies must collaborate in a co-regulatory model to carry out the process of risk identification across the ecosystem in a shared engagement platform. This will accelerate the development of proportionate regulation that is harmonized at a global level.

In doing so, stakeholders have the opportunity to explore the design and operation of regulator nodes in a decentralized autonomous organization (DAO).


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Jeudi 28 Juillet 2022