To Hedge Risks, Hong Kong SFC Requires Licensed And Regulated DeFi Projects

Key Points:

• After the US Risk report was released, the Hong Kong SFC required DeFi projects to be licensed and regulated.
• If virtual assets participate in decentralized exchanges, they must also apply for a license.
• The US risk assessment has pointed to several major hacks and crashes in DeFi over the past few months.

After the release of the DeFi risk report in the United States, Cai Zhonghui, interim director of the Intermediary Division of the Hong Kong Securities and Futures Commission (SFC), said at the “2023 Hong Kong Web3 Carnival” today. Now that DeFi projects, It needs to be supervised by the Hong Kong SFC, and the automated trading services are also under the supervision of the Hong Kong SFC.

If virtual assets participate in decentralized exchanges, they must also apply for a license. He said that many DeFi projects need to be decentralized, and a few people or officials control most of the tokens. The Hong Kong SFC must ignore their superficial claims to study the substance’s substance. Some DeFi protocols are nominally decentralized, but in practice, a few developers hold many Governance tokens that need to be analyzed for their content, not their claims.

DeFi is open source in the hope that the wider community might discover vulnerabilities, but it is open source that could allow attackers to figure out how to exploit it.

The US risk assessment has pointed to several major hacks and incidents in DeFi over the past few months, such as North Korea’s use of DeFi for money laundering and other related concerns about how DeFi projects may not meet customer needs/resist money laundering (KYC/AML) rules or are vulnerable to theft.

The US report said: “This vulnerability could be more complicated if smart contracts are not carefully written, or if they lack a mechanism to deactivate or change quickly if a critical vulnerability is identified and determined.” “Therefore, it is important for DeFi services to identify and address potential vulnerabilities and exploits in open source code.”

However, the report still shows that Defi is an essential area in developing cryptocurrencies. Recommendations include “strengthening existing monitoring and enforcement actions” to meet regulatory requirements for better participation in private sector projects.

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