US Treasury Assessed Threats of DeFi on National Security

The United States Treasury Department released an analysis report on the decentralized finance (DeFi) sector. The concept of a financial system without intermediaries is popular and well-demanded by cryptocurrency enthusiasts. However, the US Treasury does not completely agree with the argument. It noted in the report about the exploitation of DeFi services and crypto assets for illicit activities fiat currencies still top the list, though. 

Treasury’s “2023 DeFi Illicit Finance Risk Assessment” was released on Thursday, April 6, with a detailed discussion on “risks associated” with DeFi. 

The report called out illicit actors like the Democratic People’s Republic of Korea (DPRK)—North Korea, cybercriminals, ransomware attackers, online scammers, and thieves, etc., using services under the decentralized finances. This way, they move the funds and launder the proceedings generated by illegal activities. 

Further, it noted that these bad actors “exploit vulnerabilities” in DeFi sectors. Such as the companies in sectors not complying with anti-money laundering and countering the finance of terrorism (AML/CFT) regulations. 

However, the Treasury’s release also reportedly noted that traditional currencies and fiat assets are still the first preference for crooks. They use them for “money laundering, proliferation financing, and terrorist finance” more than any virtual assets. 

Brian E. Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence, said about the assessment, “Risk assessments play a foundational role in promoting understanding of the illicit finance risk environment and more effectively protecting the integrity of the U.S. financial system.”

The concerns raised by the US financial authority in the assessment regarding the misuse of DeFi are likely to be considered, but given that fiat and traditional assets are also a major part of illicit finance, it might not be all about the sector-specific issue. 

Decentralized finance means revolutionizing traditional finance by eliminating its shortcomings. The major issue in the existing system was the inability to reach maximum users, given the absence of banking facilities to a large extent. Moreover, it makes the peer-to-peer transactions possible, removing the dependency on third parties or intermediaries. 

DeFi majorly resolves the inherent issues within the centralized financial system, but its misuse can not be denied. The system is still highly prone to hacks and scams. As the crypto community puts it, it is more than necessary to have proper regulations that will safeguard the burgeoning asset class sector without compromising on its growth. 

Steve Anderrson
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Source: https://www.thecoinrepublic.com/2023/04/07/us-treasury-assessed-threats-of-defi-on-national-security/