What has Decentralised Finance (DeFi) installed for us? Are decentralised assets trustable? If the answer is yes, what are the associated risks and protections for consumers like us? These are some of the interesting topics that were discussed during the DeFi fireside chat on 20th February, at the Innovator stage at UNICON 2021 where Chye Kit and John Gu had an interesting discussion regarding the aforementioned topics.
Chye Kit kickstarted the fireside chat by emphasizing on the importance of having an overarching concept of supervision and regulation for any scale of financial services providers, including DeFi. This brings us to the key topic of this fireside chat, Rise of DeFi, Regulatory Thoughts. Here are six key takeaways from this insightful discussion:
1. The cryptocurrency market has shot up to an all-time high in the market today despite being a high-risk segment. The defensive gear against the risks is the consumer's own judgment.
Digital currency is bounded by tons of risks which is comparable to the stock market where cryptocurrency market speculators may attempt to attack this channel for their own gains, causing a bubble-like phenomenon, which can be detrimental to the market. Ultimately, decisions and judgement should be dictated by the consumers themselves.
Unlike Centralised Finance (CeFi), DeFi does not involve face-to-face onboarding and hence, it may become a convenient platform for fraudsters to launder money if DeFi providers do not adhere to proper KYC/AML checks on who they are onboarding.
2. Similarly to DeFi undergoing technological advancements, CeFi is also experiencing technological evolution.
DeFi is definitely a form of technology advancement and it can bring about tons of efficiency in the market if it is properly utilised. However, CeFi is also not resting on their laurels. In the CeFi arena, many players are also experimenting with technologies and tying up with technological companies in view to enhance their product quality and security. Central Banks are also responding and coming up with their own digital currencies.
3. DeFi or CeFi, it does not matter to the consumers.
Both Chye Kit and John agreed that it does not matter whether the consumers are using DeFi or CeFi services. In a P2P lending context, what really matters is the price of the services and whether there is enough trust that consumers can put on the chosen platform.
4. As more consumers enter the DeFi market, they get more familiar with the concept of it and it is only a matter of time where regulators start to intervene in regulating the market.
John supplemented the example of the e-commerce market in which the majority of us are familiar with. In the past, people were not comfortable with the concept of purchasing items from the internet. As time went by, people started to familiarize with the concept and ever since then, the e-commerce industry has flourished.
Chye Kit elaborated that with the emergence of DeFi, it is a matter of time where regulators intervene to impose regulations to protect consumers; preventing bad players from exploiting the market for their own gains such as conducting money laundering and terrorism financing activities. This is when Regulatory Technology (RegTech) transpires to facilitate the complex DeFi ecosystem.
At Cynopsis Solutions, we specialise in building RegTech solutions to help regulated entities to digitise and automate their compliance processes. Our end-to-end (from Digital Onboarding to e-KYC to Transaction Monitoring) and scalable solutions aim to promote regulatory inclusion worldwide regardless of which country and sector you are coming from.
5. Till date, DeFi can supplement but unable to replace CeFi.
Both speakers came to a consensus that although CeFi is not replaceable by DeFi, it can act as a supplement. DeFi is still a very new segment that requires more scrutiny as there are a lot of competing regulatory regimes. However, the existence of DeFi and its technological concept could mean a push factor for CeFi technological adoption and advancement.
6. Borderless collaboration among regulators will determine the success of DeFi.
During the final wrap up of the discussion, Chye Kit highlighted the importance of how regulators across the world should work in a collaborative fashion to understand the associated risks in the DeFi market in order to make this potential market a success.
And that’s a wrap to the intriguing 30-minutes firechat chat! It was definitely a very insightful discussion between the two invited speakers and we would like to thank NUS Entrepreneur Society for having us at one of their predominant events. We hope the students have learnt more about DeFi and its potential through this session!
About Cynopsis Solutions
Founded in 2014 and headquartered in Singapore, Cynopsis Solutions offers RegTech solutions designed to digitise and automate Compliance and regulatory processes, in particular know-your-customer, anti-money laundering, and counter-terrorism financing. Cynopsis Solutions’ accolades include MAS FinTech Awards (2018), RegTech100 (2018, 2019) and Financial Times Top 50 High Growth Companies in Asia-Pacific.
Our end-to-end KYC/AML solutions are designed according to the global FATF recommendations, applicable to more than 180 jurisdictions and is already helping more than a thousand B2B customers in the Banking, Financial Services, FinTech and Cryptocurrency, Professional Services and Gaming sectors globally.