- The Enterprise Ethereum Alliance has released its first DeFi Risk Assessment Guidelines.
- The guidelines are intended to help DeFi protocols meet regulatory requirements and inform regulators.
Industry group the Enterprise Ethereum Alliance wants to prevent new crypto laws that stifle innovation with a new handbook.
Its DeFi Risk Assessment Guidelines is an in-depth handbook detailing the risks involved in working with DeFi, and how to assess, manage, account for and mitigate them.
Such guidelines are needed due to regulatory ambiguity and a general lack of accounting standards and guidance for DeFi in laws like the EU’s Markets in Crypto-Assets regulations, the EEA says.
“There are no specifics on what security reporting requirements are expected from the project to be compliant,” Dyma Budorin, co-chair of the EEA’s DRAMA working group and CEO of blockchain security firm Hacken, told DL News.
The guidelines will enable DeFi protocols to take a proactive approach to compliance, while also helping regulators draft regulation that doesn’t stifle innovation.
The initiative comes as regulators and politicians have put pressure on the industry with the threat of anti-crypto laws, tax loophole cuts, and a barrage of enforcement actions against industry heavyweights.
The guidelines in action
The EEA guidelines cover seven main DeFi risks and contain sections on how to assess and address such risks.
These include software-based threats such as smart contract exploits or maximal extractable value, as well as more general considerations such as compliance and legal risks.
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There’s also an extensive list of defined terms to help the uninitiated make sense of DeFi-specific jargon.
Regulators in the UAE and the EU are already using the EEA’s guidelines, according to Budorin.
Not just for crypto natives
The EEA’s board is composed of crypto natives like Consensys’ Joe Lubin and the Ethereum Foundation’s Aya Miyaguchi, as well as members from non-crypto native companies, including senior employees from JP Morgan, Santander, and Microsoft.
The EEA said its guidelines will be relevant to both such non-crypto firms and regulators.
Budorin said they’re also important for financial institutions assessing investment risks.
“They don’t know what DeFi risks are, and that’s why they don’t step into DeFi,” he said. “DeFi protocols that plan to cooperate with old money can use the DeFi Risk Assessment Guidelines as best practice references.”
The guidelines come as DeFi adoption among major traditional finance firms heats up.
Global asset manager BlackRock this year launched its first tokenised fund on Ethereum.
Several other firms, including JP Morgan, Goldman Sachs, and HSBC, are also continuing their experimentation with DeFi through tokenisation.
Tim Craig is a DeFi Correspondent at DL News. Got a tip? Email him at tim@dlnews.com.
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