DeFi Requires Regulation Divided into Four Areas

A policy suggestion has emerged stating that DeFi (Decentralized Finance) services should be regulated by dividing them into four categories based on control and intermediary characteristics. Choi Ja-yu, a senior examiner at the Financial Supervisory Service, proposed this approach in a paper titled 'The Responsibility Attribution Structure of Decentralized Finance.' The DeFi market is divided into four areas: high control/high intermediation, low control/high intermediation, high control/low intermediation, and low control/low intermediation. The high control/high intermediation area manages user assets, allowing for the strengthening of existing regulations on virtual asset service providers. The low control/high intermediation area does not hold user assets, thus applying regulations to front-end operators. The high control/low intermediation area can influence price formation even without organizing transactions, raising questions about the responsibilities of technology infrastructure providers. The low control/low intermediation area consists of pure protocols where traditional financial regulations are difficult to apply, necessitating a responsibility structure centered on individual actors. Opinions have also been expressed regarding on-chain supervision and safe harbor regulations. The author pointed out that due to the nature of DeFi, it is challenging to identify risks using traditional supervisory methods, emphasizing the need to establish a real-time supervisory system utilizing on-chain data. Additionally, for fully decentralized services, the introduction of conditional safe harbor measures was also mentioned.

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