Decentralized Finance and Global Regulatory Challenges: A Framework for Compliance in Emerging Technologies
Published 19-07-2024
Keywords
- Decentralized Finance,
- Compliance,
- Decentralized Finance (DeFi)
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
Abstract
Decentralized Finance (DeFi) has revolutionized the financial landscape by providing innovative, blockchain-based financial services without the need for traditional intermediaries. While DeFi offers unparalleled benefits such as transparency, accessibility, and efficiency, its decentralized nature presents significant regulatory challenges. This paper explores the complexities of regulating DeFi on a global scale, highlighting issues such as anti-money laundering (AML) compliance, know-your-customer (KYC) requirements, data privacy concerns, and jurisdictional ambiguity.
Through an analysis of core DeFi components, including smart contracts, decentralized exchanges, and stablecoins, the paper examines the inherent risks posed by decentralized systems, such as fraud, systemic vulnerabilities, and regulatory arbitrage. It also evaluates emerging technological solutions, such as on-chain analytics, privacy-preserving technologies, and AI-driven compliance tools, as well as decentralized governance models like decentralized autonomous organizations (DAOs).
By comparing regulatory approaches from the United States, European Union, and Asia-Pacific, this paper underscores the need for harmonized global frameworks to address DeFi's unique challenges. The findings suggest that a balance between innovation and compliance is critical to ensuring the sustainable growth of DeFi. This paper concludes by proposing a collaborative, multi-stakeholder approach to regulation that fosters trust, protects consumers, and maintains the integrity of decentralized financial systems.
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