The European Securities and Markets Authority (ESMA) said that decentralized finance (DeFi) can create greater financial inclusion by offering access to financial products and services without intermediaries, according to a Wednesday report.
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Fast Facts
- Smart contracts can reduce the need for traditional financial intermediaries, which could bring “potential benefits in terms of speed, security, and costs for financial transactions, ” added ESMA.
- The 22-page report also highlighted risks around DeFi, such as the highly volatile nature of cryptocurrencies like Bitcoin and Either.
- “DeFi is especially vulnerable to scams and illicit activities, since virtually anyone can create or interact with DeFi protocols without the need to identify oneself and go through ‘know your customer’ checks,” ESMA said.
- Last year, a record-breaking year for crypto heists, hackers stole at least US$3.8 billion in cryptocurrencies, according to blockchain intelligence firm Chainalysis. DeFi platforms accounted for more than 82% of cryptocurrency thefts in 2022.
- ESMA published its second Markets in Crypto-Assets (MiCA) consultation paper on Oct. 5, seeking feedback until Dec. 14. MiCA is the European Union’s legal framework for regulating digital assets.
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