Challenges and Approaches to Regulating Decentralized Finance
Decentralized finance (DeFi) is an ecosystem of financial applications that are built on top of blockchain networks. DeFi aims to create an open-source, permissionless, and transparent financial system that operates without any central authority. Instead, a smart contract—which is a self-executing c...
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| Format: | Article |
| Language: | English |
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Cambridge University Press
2021-01-01
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| Series: | AJIL Unbound |
| Online Access: | https://www.cambridge.org/core/product/identifier/S2398772321000660/type/journal_article |
| _version_ | 1811157337672515584 |
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| author | Iwa Salami |
| author_facet | Iwa Salami |
| author_sort | Iwa Salami |
| collection | DOAJ |
| description | Decentralized finance (DeFi) is an ecosystem of financial applications that are built on top of blockchain networks. DeFi aims to create an open-source, permissionless, and transparent financial system that operates without any central authority. Instead, a smart contract—which is a self-executing contract with the terms of the agreement between transacting parties written into lines of code—replaces financial institutions in the transaction. As a result, DeFi is available to everyone with reliable access to electricity and Internet connectivity. It also serves as a form of non-custodial finance since users maintain full control of their assets and transact through smart contract programs that facilitate peer-to-peer interactions. While DeFi presents huge opportunities, it also poses significant risks to traditional finance ecosystems, including the use of stablecoins and the absence of a know-your-customer framework. This essay argues that for DeFi to secure credibility, it needs to be adequately regulated in a way that aligns with how the technology works. |
| first_indexed | 2024-04-10T05:05:42Z |
| format | Article |
| id | doaj.art-30211f4dda7e4ddb813e7081e2a0004d |
| institution | Directory Open Access Journal |
| issn | 2398-7723 |
| language | English |
| last_indexed | 2024-04-10T05:05:42Z |
| publishDate | 2021-01-01 |
| publisher | Cambridge University Press |
| record_format | Article |
| series | AJIL Unbound |
| spelling | doaj.art-30211f4dda7e4ddb813e7081e2a0004d2023-03-09T12:27:09ZengCambridge University PressAJIL Unbound2398-77232021-01-0111542542910.1017/aju.2021.66Challenges and Approaches to Regulating Decentralized FinanceIwa Salami0Iwa Salami is a Reader (Associate Professor) in Law at the Royal Docks School of Business and Law, University of East London.Decentralized finance (DeFi) is an ecosystem of financial applications that are built on top of blockchain networks. DeFi aims to create an open-source, permissionless, and transparent financial system that operates without any central authority. Instead, a smart contract—which is a self-executing contract with the terms of the agreement between transacting parties written into lines of code—replaces financial institutions in the transaction. As a result, DeFi is available to everyone with reliable access to electricity and Internet connectivity. It also serves as a form of non-custodial finance since users maintain full control of their assets and transact through smart contract programs that facilitate peer-to-peer interactions. While DeFi presents huge opportunities, it also poses significant risks to traditional finance ecosystems, including the use of stablecoins and the absence of a know-your-customer framework. This essay argues that for DeFi to secure credibility, it needs to be adequately regulated in a way that aligns with how the technology works.https://www.cambridge.org/core/product/identifier/S2398772321000660/type/journal_article |
| spellingShingle | Iwa Salami Challenges and Approaches to Regulating Decentralized Finance AJIL Unbound |
| title | Challenges and Approaches to Regulating Decentralized Finance |
| title_full | Challenges and Approaches to Regulating Decentralized Finance |
| title_fullStr | Challenges and Approaches to Regulating Decentralized Finance |
| title_full_unstemmed | Challenges and Approaches to Regulating Decentralized Finance |
| title_short | Challenges and Approaches to Regulating Decentralized Finance |
| title_sort | challenges and approaches to regulating decentralized finance |
| url | https://www.cambridge.org/core/product/identifier/S2398772321000660/type/journal_article |
| work_keys_str_mv | AT iwasalami challengesandapproachestoregulatingdecentralizedfinance |