Topic: Defi

The growth of decentralised finance (DeFi) has resulted in the rapid development of both regulatory and judicial oversight. As regulators and courts grapple with issues ranging from the definition of “property” to questions of control and governance, including how to determine relevant laws and courts, we are seeing an increase in requests for advice on exposure to civil disputes risk from a range of industry participants, including financial institutions, investors and software engineers.

On 19 December 2023, the International Organization of Securities Commissions (IOSCO) published a final report with policy recommendations to address market integrity and investor protection issues in decentralised finance (DeFi).

On 11 October 2023, the European Securities and Markets Authority (ESMA) published two articles on decentralised finance (DeFi), one on developments and risks in the EU market and another on a methodology for the categorisation of smart contracts. In these articles, ESMA highlighted risks to consumers, new forms of market abuse, and possible vulnerabilities to financial stability.

On 16 February 2023, the Financial Stability Board (FSB) published a report on the financial stability risks of decentralised finance (DeFi).

On 21 November 2022, the Bank of England (the Bank) published a speech by Jon Cunliffe at Warwick Business School’s Gilmore Centre Policy Forum Conference on Defi and Digital Currencies. In his speech, Mr Cunliffe reflects on recent crypto market developments and the work the authorities are doing on the regulation of crypto stablecoins and the Bank’s work on a potential central bank digital currency.

Technological innovation has continued unabated over the course of the past few years, and financial services has fared no differently. Replicating the core Web3 principle of shifting control and ownership away from a centralised operator, decentralised finance (DeFi) has created a new model for financial services that threatens to disrupt the existing order. In this article, we will explore the core characteristics of DeFi: how it works; what the key use cases are; and what regulatory challenges it creates.

Blockchain analytics firm Chainalysis have recently published the results of research showing that there has been a huge increase in the use of decentralised finance (DeFi) protocols to launder money over the last year. DeFi is an emerging financial technology based on secure distributed ledgers similar to those used by cryptocurrencies.

Our New York and London Commercial Disputes teams have collaborated to consider how you can spot and manage litigation risk in DeFi. Robert Schwinger, Harriet Jones-Fenleigh and Jonathan Hawkins’s thoughts are available in the latest volume of Global Blockchain Business Council's “International Journal of Blockchain Law”:

On 24 March 2022, the Bank of England (BoE) published, ‘Financial Stability in Focus: Cryptoassets and decentralised finance (DeFi)’ which sets out the Financial Policy Committee’s (FPCs) view on specific topics which relate to financial stability. The publication focuses on:

There is now nearly $150 billion of value locked into Decentralised Finance (DeFi) protocols and applications. DeFi provides incredible opportunities for the democratisation of financial services and could serve as the future of the financial services ecosystem, but it also comes with legal and regulatory uncertainty due to its novel structure.