EU’s Securities Regulator Weighs In On The Risk and Benefits of DeFi to the Economy The European Securities and Market Authority
(ESMA) has released a report on the development of decentralized finance (DeFi) and the risk posed by growing adoption. In a report released on Oct 11, the 22-page document highlights the risks posed
by a sector that holds much promise and reshaped finance in the region.
According to the document,
the DeFi has led to the innovation of financial products making payments easier and aiding financial inclusion to cater to the unbanked
around the world.
ESMA stated that the development of DeFi has notched several positives relating to transaction
speed, cost, and security to an extent against traditional finance but added that its application in some areas poses a significant risk.
“DeFi could contribute to greater financial inclusion by allowing users to access products and services without an intermediary who may selectively restrict access.”
Still on the positive, the document
recommends the openness of blockchain technology as it records transactions on immutable blocks without the existence of intermediaries and
“central counterparties.”
Smart contracts made decentralized finance possible creating “innovative financial products” that range from futures contracts,
automated market makers, flash loans, etc.
