IMF’s DeFi Governance Recommendations Include These Two Steps

IMF’s DeFi Governance Recommendations Include These Two Steps

IMF’s DeFi Governance Recommendations Include These Two Steps

The International Monetary Fund (IMF) has proposed a series of measures aimed at regulating the decentralized finance (Defi) sector.

The organization published the latest chapter of its Global Financial Stability report, which is entitled “The Rapid Growth of Fintech: Vulnerabilities and Challenges for Financial Stability.” outlining its thoughts on how to manage the Defi space. The first step, the IMF said, is for authorities to develop a clear understanding of Defi and its implications.

In the published post, the authors recommended that “as a first step,” regulation should focus on “some elements of the crypto ecosystem that have enabled the development of DeFi” – namely stable coin issuers, centralized crypto exchanges, and hosted wallet service providers. The first step, the IMF said, is for authorities to develop a clear understanding of Defi and its implications.

The second step, the IMF said, is to develop a regulatory approach that strikes a balance between “innovation and risk management.” The authors however claimed that any kind of proposed regulation should cover reserve managers, network administrators, and market makers. According to the IMF, these 3 parties, “benefit from robust and comprehensive national regulatory frameworks delivered through common global standards by standard-setting bodies.”

The authors stressed that the best route with the proposed policies should involve national authorities “directly” regulating what they called “key functions within DeFi.” The IMF claimed that this governance system model “could be a natural entry point for regulators to interact”.

Taking a leaf out of the book of the Japanese centralized crypto exchange sector, which is largely self-regulated, the IMF authors suggested that “much as in traditional securities markets, self-regulatory organizations for centralized crypto exchanges would lead to more robust listing standards for (tokens of) DeFi platforms and thereby improve their governance and quality.”

The IMF’s suggestions didn’t stop there. The international organization also said that “carefully designed policies” should be put in place by governments in order to “support the development of crypto-assets and their underlying technologies.”

However, the focus of the published report was not only on reducing investment risk and regulation. The benefits of crypto adoption were also discussed. The IMF report authors also noted that DeFi “has the potential to exhibit cost-efficient financial intermediation by bypassing and short-cutting the intermediation chain.”

While the IMF warned of “greater risks and uncertainties” from DeFi, it conceded that the sector “has the potential to offer financial services with even greater efficiency, becoming a gravitational force that attracts a large number of crypto investors.”

The report concluded by saying that the IMF stands ready to cooperate with member countries on these and other aspects of digital finance, including through technical assistance and training.

What do you think about the IMF’s Defi governance recommendations? Let us know in the comments below!

Martin K
Martin K author check sign Pro Investor

I am a bitcoin and crypto currency writer. I also work as a professional trader, and I have experience with stock trading and bitcoin trading. In my work, I aim to provide clear and concise information that helps people understand these complex topics.