Adopting a wait-and-see approach is the best way to regulate the DeFi space, according to a report from Binance and the National Bank of Kazakhstan.
They suggested increasing cooperation among regulators, building and learning from regulatory sandboxes, and educating both consumers and lawmakers while we wait and see how the market develops. report It is titled “The State of Digital Asset Industry and DeFi in Central Asia”.
Binance and Kazakhstan have agreed that the best approach to regulating the DeFi space is to spend time analyzing the space and experimenting with regulation while evolving it independently.
The report’s first proposal is to deepen cooperation between regulators and participants in both traditional finance and DeFi. This allows us to find ways for centralized and decentralized finance to coexist. The report therefore adopts a unified perspective, stating:
“Decentralized exchanges will be bigger than centralized exchanges. But in the future, centralized and decentralized crypto protocols will coexist as many people prefer traditional methods of accessing accounts. There is a possibility.”
In the spirit of coexistence, the report proposed as a second step to build a regulated and user-friendly infrastructure bridging the two territories. This infrastructure brings CeFi and DeFi closer together by facilitating crypto-to-fiat trading.
Another proposal encourages the construction of regulatory sandboxes for testing and learning, while conducting joint R&D projects to study the DeFi space. Acquiring expertise in these areas will bring legal clarity to DeFi-related activities and enable further development.
Finally, the report noted the importance of improving the financial and digital literacy of consumers while closing the crypto knowledge gaps of lawmakers.
wait and see
To see how the world is looking to regulate the crypto space, the report takes a detailed look at the various regulatory frameworks around the world and categorizes them into three main approaches.
- Application of traditional regulatory frameworks
- Construct a new framework to address the above challenges
- Adopt a “wait and see” approach
The report argued that “imposing unfit regulation” would stifle innovation in the DeFi ecosystem. The creation of new frameworks has also been paused. This is because “it seems premature at this stage, as public authorities and the ecosystem need more time to understand all his DeFi-related use cases.”
The report therefore concluded that the third option is the best choice lawmakers can make right now.
DeFi allows users to initiate financial transactions without intermediaries, lending or borrowing money from peers. It is difficult to regulate the Defi space as it does not rely on public authorities. The nature of DeFi poses several challenges for regulators, according to the report.
First of all, the lack of financial and digital literacy of users, the lack of cryptocurrency knowledge of regulators, the irrational behavior of investors, the legitimacy of data provided by oracles, lack of decentralization, liquidity, etc. Financial stability risks arise from the banking system. Fiscal policy is one of the emerging trends challenging regulators.
Second, there are financial, technical, and operational risks to participants, stakeholders, and the market as a whole, posing various challenges for regulators. Risks such as market manipulation, technical failures, forks, governance system vulnerabilities, fraud, fish loan attacks, and cyberattacks must be addressed.
Binance and Kazakhstan
Binance and Kazakhstan will start forming a partnership in mid-2022. In May 2022, Binance CEO Changpeng Zhao (CZ) personally visited A country that meets a president and many prominent legislators.
At the time, CZ recognized Kazakhstan as “one of the world leaders in the cryptocurrency industry.” CZ also said that Binance will work with the country’s legislators to contribute to the development of cryptocurrencies in the region.
In October 2022, Kazakhstan began testing its Central Bank Digital Currency (CBDC), Digital Tenge, on the BNB Chain (BNB).