U.S. commodity regulators were given a crash course in decentralized finance (DeFi) on March 22. Cryptocurrency executives briefed regulators on key issues affecting the space, including exploits, decentralization and digital identity.
As part of the first meeting of the CFTC's Technology Advisory Committee (TAC) scheduled to take place in Washington, D.C., members from across the cryptocurrency space made presentations to a regular session aimed at covering key issues impacting DeFi today. CFTC Commissioner Christy Goldsmith Romero delivered prepared remarks at the opening of the conference, saying it was "important" to understand how DeFi works as regulators and lawmakers are currently working on Make "defi-related policy decisions".
The panel began with Ari Redbord, head of legal and government affairs at blockchain intelligence firm TRM Labs, explaining DeFi and blockchain technology.
He outlined blockchain's purported benefits of transparency, immutability and privacy, saying it could allow regulators to balance "the need for privacy with security." Together, Redbord and Nikos Andrikogiannopoulos, founder of analytics firm Metrika, outlined the current benefits and problems facing decentralization, concluding that the benefits “far outweigh” the challenges, which they believe will “solve themselves.”
“We have reached a point where decentralization can no longer be ignored,” Andrikogiannopoulos said. "Not only do we have to embrace it, but I think we have a responsibility to steer it in the right direction."
Redbord highlighted the total value that has entered DeFi over the past two years, saying it “was stress tested during FTX and didn’t fail. DeFi is definitely here to stay.” According to DefiLlama, the total value locked in DeFi is about $49.1 billion, up from about $15 billion in early January 2021.
Carole House, a resident executive at venture capital firm Terranet Ventures, and Jill Gunter, chief strategy officer at blockchain infrastructure firm Espresso Systems, then used the Ethereum name service and MetaMask wallet. Michael Shaulov, founder of Fireblocks, and Dan Guido, founder of Trail of Bits, then covered the exploits and vulnerabilities that have and will continue to occur in the market.
“All hacks are public, and often your users and other outside companies discover them before you,” Guido commented, saying this instills a “need for perfection” in crypto companies.
Throughout 2022, the top 10 breaches in the crypto space alone cost over $2 billion, and DeFi was hit 113 times out of 167 exploits conducted throughout the year.
Shaulov then briefly explained the exploits for the Ronin Bridge, BadgerDAO, and most recently the Euler Finance exploit.
The DeFi portion of the meeting ended with members voting unanimously in favor of the creation of a Digital Assets and Blockchain Technology Subcommittee. The subcommittee will focus on "Why DeFi", what problems it solves, use cases, vulnerabilities, and proposed legal and policy frameworks.
