Proposal of Principles of DeFi Disclosure and Regulation

This paper proposes eight principles for DeFi disclosure and regulation based on the implications from the key challenges, risks, and questions. Such implications include Innovation Trilemma, whether a DeFi constitutes the “financial service” which participants are subject to consumer/investor protection needs to be considered, regulations from the perspective of systemic risk and anti-money laundering, establishment of a disclosure system and enforcement framework suitable for the characteristics of DeFi and crypto-assets. Creating a common disclosure platform in which national authorities and international standard-setting bodies could participate and give authority would be desirable. Such a framework would provide basic information regarding a DeFi, such as disclosure of data, governance mechanisms, token information, as well as information on audits, etc., and it would be a convenient way to check for compliance as well. Designing an appropriate common disclosure platform, that also considers participants’ incentive structure, is very challenging and will be the subject of further research.