According to the World Economic Forum (WEF), policymakers and regulators worldwide should conduct decentralized finance (DeFi)-related innovations and experiments within regulatory sandboxes, focusing on tailored risk mitigation and transparency.
This follows a recent assessment in major economies, including the United States, the United Kingdom, Japan and the United Arab Emirates, where it identified the need for a tailored approach to regulating the DeFi ecosystem.
“Policymakers and regulators should, therefore, explore the possibility of achieving the crucial aims of protecting consumers, maintaining market integrity, and promoting innovation by calibrating requirements and parameter definitions for decentralized networks,” the WEF report concluded.
The WEF states that countries embracing a ‘nimble, sandbox-first approach’ to tackle inherent risks are making progress in DeFi innovation. It endorses the use of controlled environments for experimenting with digital assets and decentralized protocols.
The WEF also observed that only 9% of the jurisdictions analyzed have extended existing financial regulations to digital assets.
- The UK
- Hong Kong, and
- Singapore
are the only regions that have created or are in the process of developing a customized regulatory framework.
The WEF suggested using sandboxes to create compliant ecosystems for jurisdictions interested in pursuing DeFi innovations.
The WEF emphasized the need for collaboration between regulators and DeFi platforms to maintain clear communication about potential risks. The report also highlighted that licensing models designed to accommodate DeFi’s decentralized structure have supported progress in the sector.
While not part of the WEF’s studies, African countries, notably South Africa, are taking the lead when it comes to applying existing regulations to digital assets.
More than 100 cryptocurrency asset service providers drawn from Africa and the rest of the world have moved operations to South Africa, thanks to its recognition of their services and a clear continuously improving regulatory regime.
🇿🇦REGULATION | South Africa Appproves 63 New Crypto License Applications, Now Totalling to 138
“The total number of applications received to date is 383, of which five have been declined. A further 80 applications have been voluntarily withdrawn by applicants following… pic.twitter.com/uIXDCHBUGW
— BitKE (@BitcoinKE) July 3, 2024
South Africa’s Financial Sector regulator, FSCA, classified crypto assets as financial products requiring regulatory oversight in 2022, being the first African country to do so.
Besides South Africa, Seychelles which recently approved a digital assets regulation bill, has also emerged as a top crypto haven, home to several leading blockchain firms like Scroll.
🇸🇨REGULATION | Seychelles Approves Digital Assets Regulation Bill Following FATF Recommendations
“For an applicant to qualify for a licence, the principal criteria is to demonstrate a substantial presence in Seychelles, such as having a director who is a resident.
They must… pic.twitter.com/UrM06QoRLC
— BitKE (@BitcoinKE) August 20, 2024
The small island nation accounted for the bulk of VC funding to blockchain and cryptocurrency companies across Africa.
