Oleg Ryabov
ABSTRACT
The paper discusses the influence exerted by financial systems on the change of the financial sector and its further development. The study is relevant since there is need for building up more trust in blockchain. In the course of the research, the main trends of decentralized financial systems were identified and presented, including the problems related to decentralized financial systems and options for resolving them. The study is aimed at defining the problems and searching for ways to tackle them when regulating decentralized finances (DeFi) in order to ensure effective regulation on the part of the Central Bank and control risks. Rather than eliminating the need for regulation, DeFi, in fact, has to be regulated so as to achieve its main decentralization goal. In addition, DeFi presents a potential possibility for developing a fairly new regulation method: the idea of “integrated regulation”. The paper considers various approaches to regulation, which can be integrated in the DeFi design. It can potentially lead to the decentralization of both finance and its regulation, which eventually expresses RegTech (Regulatory Technology), which is used by financial organizations for being able to meet the requirements of the regulator more easily. The study defines the problems that are encountered in the course of using DeFi and points out the possible ways for dealing with them, including a way for switching to blockchain independently so that the transaction is not charged in ETH for calculation on blockchain; reducing the complexity and costs of use and understanding of DeFi software by most users. A whole lot of risks that decentralized financial protocols are susceptible to is analyzed: vulnerabilities in the code security of smart contracts, their stacking and layout; oracle risk, which is subject to manipulation in the process of data transfer; the financial risk of high volatility, regulatory risk and crisis of the global economy due to the inability to predict in which way the Covid-19 pandemic is going to be resolved.
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Index Terms
- Decentralized Finance (DEFI) as the Basis for the Transformation of the Financial Sector of the Future
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