Crypto
Home›Crypto›Regulation›FATF warns most DeFi is centralized in practice and sh…
FATF warns most DeFi is centralized in practice and should be regulated
The FATF said nearly 93% of surveyed jurisdictions have not applied its rules to qualifying DeFi, and it called noncooperative platforms a last resort target for bans.
The Financial Action Task Force said many DeFi platforms are decentralized in name only, pointing to centralized control elements that should bring them under anti money laundering standards. In a new report, FATF said its rules apply to any DeFi arrangement where an identifiable person maintains control or sufficient influence, regardless of how decentralized a project claims to be.
FATF described DeFi as falling into three categories: platforms with identifiable controllers, arrangements that are centralized in practice with hidden operators, and a small minority it called truly decentralized. It said only the leaderless group should escape FATF standards, while the report found centralized elements frequently persist in practice through mechanisms such as concentrated governance tokens, upgrade control, and insider access to fees and rewards.
The report lays out on chain and off chain indicators of control, including upgrade keys and kill switch functions, the ability to set fees or risk parameters, concentrated voting power, control of the public website or app, and corporate entities that employ core developers or hold a protocol treasury. It said where such control exists, the people behind the platform should be licensed and supervised like other financial firms, including potentially front end operators that route users to a protocol.
FATF President Giles Thomson said the goal is to stop criminals exploiting new technology to launder money while supporting responsible financial innovation, adding that strong information sharing between public and private parties is central to the response. The report also warned that, as a last resort, countries should ban platforms that refuse to cooperate, noting that only two surveyed jurisdictions have ever licensed or registered a qualifying DeFi arrangement, according to Decrypt.