DeFi’s Notable Features Led to Security Flaws: FSB Report

The Decentralized Finance (DeFi) market set off to a good start in 2023. On Thursday, the crypto market surged in value, and for the first time after the FTX collapse, the DeFi total value locked (TVL) exceeded the $50 billion market cap. Meanwhile, the DeFi platform recently faced significant regulatory challenges.

On Thursday, the Financial Stability Board (FSB) released a report on the financial stability risks on DeFi platforms. As per the report, DeFi is quite similar to traditional finance in terms of its functions or the risks it is exposed to. And the final crypto regulatory framework of FSB is expected to be released in July, as per the report.

DeFi’s unique characteristics may be triggered by vulnerabilities like “Operational fragilities, liquidity and maturity mismatches, leverage and interconnectedness,” the FSB said. The connections and transmission between DeFi and the real economy play a significant role in determining how much these vulnerabilities can raise questions about financial stability. As per US Blockchain analysis, cyber attackers stole 1.3 billion USD from cryptocurrencies, 97% of which were stolen from DeFi platforms between January and February 2022.

Recently Johnson, the CEO of Nuggets, a “super-wallet,” said, “Regulatory compliance will involve implementing AML/KYC procedures.” He added, “DeFi platforms can incorporate privacy-enhancing technologies like zero-knowledge proofs and homomorphic encryption to protect user privacy while still adhering to regulation.”

Earlier, Dmitry Tolok, the co-founder of Primex Finance, also commented on DeFi security. Dmitry said, “more insurance protocols are also needed to mitigate concerns related to potential hacks. The growth of such protocols would lead to the organic development and growth of DeFi.”

During November 2022, the DeFi TVL fell nearly $50 billion, as per data. At press time DeFi TVL recorded an all-time high for the past few months. On Thursday, TVL earned nearly $51.1 billion, $8.78 billion held by Lido. The largest Defi market, Lido, recorded a 36.77% increase in its TVL reaching $8.8 billion.

As per DefiLlama data, Ethereum rose by 6.5%, BNB increased by 4.2%, Cardano rose by 2.4%, and Polygon increased by 8.3%. And another top DeFi performer was Solana, with a 3.9% increase. The total volume in DeFi is $7.37 billion, 9.38% of the total crypto market, and the volume of all stablecoins is $72.27 billion, according to CoinMarketCap.

Disclaimer

The views and opinions stated by the author, or any people named in this article, are for informational purposes only and do not establish financial, investment, or other devices. Investing in or trading crypto assets comes with a risk of financial loss.