Challenges and Approaches to Regulating Decentralized Finance

Article


Salami, I. 2021. Challenges and Approaches to Regulating Decentralized Finance. AJIL Unbound. 115, pp. 425-429. https://doi.org/10.1017/aju.2021.66
AuthorsSalami, I.
Abstract

Decentralized finance (DeFi) is an ecosystem of financial applications that are built on top of blockchain networks. DeFi aims to create an open-source, permissionless, and transparent financial system that operates without any central authority. Instead, a smart contract—which is a self-executing contract with the terms of the agreement between transacting parties written into lines of code—replaces financial institutions in the transaction. As a result, DeFi is available to everyone with reliable access to electricity and Internet connectivity. It also serves as a form of non-custodial finance since users maintain full control of their assets and transact through smart contract programs that facilitate peer-to-peer interactions. While DeFi presents huge opportunities, it also poses significant risks to traditional finance ecosystems, including the use of stablecoins and the absence of a know-your-customer framework. This essay argues that for DeFi to secure credibility, it needs to be adequately regulated in a way that aligns with how the technology works.

Journal AJIL Unbound
Journal citation115, pp. 425-429
ISSN2398-7723
Year2021
PublisherCambridge University Press for The American Society of International Law
Publisher's version
License
File Access Level
Anyone
Digital Object Identifier (DOI)https://doi.org/10.1017/aju.2021.66
Publication dates
Online06 Dec 2021
Publication process dates
Deposited13 Dec 2021
Copyright holder© Iwa Salami 2021
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