Experts Point to Risks for DeFi in Final Version of FATF Regulations

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The text of the final version of the FATF guidelines for the crypto industry does not contain clear and narrow restrictions on supervisory functions. Its participants did not receive answers, “the saga will continue,” said Jake Chervinsky former general counsel of Compound Labs.

Chervinsky has collected opinions from colleagues who came to similar conclusions.

The DeFi Education Fund’s policy director, millercwl, believes the FATF sees a world in which decentralized and permissionless systems are suppressed at best.

In his opinion, it is difficult for the organization to admit that DeFi will eliminate intermediaries in the form of banks and custodians.

The FATF offered two overly broad recommendations: restrict the launch of public systems and expand the regulatory perimeter of virtual asset providers (VASPs).

millercwl has seen difficulties in deploying DeFi protocols. Developers will actually be forced to run permissioned systems (with restrictions) due to the need to fulfill the requirements for VASPs.

Avoiding the creation of software that does not fit into existing regulatory regimes is contrary to a “technology neutral” approach. It can also raise the question of compliance with the US Constitution, the expert added.

According to millercwl, the FATF seeks to define existing players in the player space as DeFi VASPs that have “some degree of control or sufficient influence” over the protocol. However, the organization does not define these terms and does not explain how to apply the recommendations. In addition, “sufficient influence” is not spelled out in the regulatory frameworks of the countries.

The specialist concluded the recommendations deprive developers of clarity about the criteria that their projects should meet. They must either abandon innovation or accept the increased risks.