It certainly causes concern when adverts for shady altcoins appear on public transport in major cities across the world. Many activities that have been illegal in public equity markets for decades, such as wash trades, pump-and-dumps schemes, and unqualified advertisement of high-risk investments, have yet to be regulated in the realm of DeFi and blockchain. Regulators the world over are looking to get a handle on this and 2022 may be the year when we see firm guidance come from the USA’s SEC, Britain’s FCA and other regulators on how financial regulation applies to blockchain. Garry Gensler, chair of the SEC, has stated that while he has no plans to criminalise crypto, regulation is coming and that crypto markets “need more investor protection.” Enforcement will doubtlessly become more robust and increasingly invasive scrutiny of blockchain participants can be expected. Blockfi’s $100m settlement with US regulators, the SEC’s first enforcement action against a crypto lender, will not be the last such action we see this year. Stablecoins, privacy coins and DeFi products are the strongest candidates to find themselves within regulators’ crosshairs. Stablecoins are attracting attention because of the risk of them not being properly backed by liquid assets, or the risk of an algorithmic peg breaking. Privacy coins that mask the addresses of senders and recipients in financial transactions are a natural haven for criminals, making them a top regulatory target. With DeFi, the regulatory concern is that most investors are not sophisticated or tech-savvy enough to understand if promised returns are possible, and many DeFi protocols are not as decentralised as one might imagine, making them open to abuse by a bad actor. Increased Regulation Conclusion While no one can tell for certain what 2022 will bring, it’s likely that DeFi and blockchain will continue to evolve at a breathtaking pace. The market remains young but rapidly growing, and as many millions of new users are on-boarded to DeFi and blockchain by new product offerings from major tech companies like Coinbase and Meta in 2022, this is a space that can be expected to continue to boom. Finance Monthly. Bus i ne s s & Economy 23
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