# G20 watchdog homes in on decentralised finance after FTX crash Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2023-02-17 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: FSB Takes Action on DeFi Vulnerabilities Meta Description: The Financial Stability Board (FSB) is addressing vulnerabilities in decentralised finance highlighted by the FTX collapse, proposing measures to regulate this URL: https://financedigest.com/g20-watchdog-homes-in-on-decentralised-finance-after-ftx-crashhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2023-02-16t222532z2lynxmpej1f0b0rtroptp4g20-indonesia-1736814436276-compressed.jpg) By Huw Jones LONDON (Reuters) – The G20’s Financial Stability Board (FSB) said on Thursday it would take steps to tackle “vulnerabilities” and data gaps in decentralised finance (DeFi) highlighted by the collapse of cryptocurrency exchange FTX last year. The fast-growing and unregulated DeFi segment offers trading, borrowing and lending in cryptocurrency assets by using public blockchains to record transactions, with no central control. The fact that crypto-assets underpinning much of DeFi lack inherent value and are highly volatile magnifies the impact of these vulnerabilities when they materialise, as recent [incidents demonstrate,” the FSB said in a report](https://www.financedigest.com/uks-morgan-advanced-materials-reports-cyber-security-incident-on-its-network.html "UK’s Morgan Advanced Materials reports cyber security incident on its network") to ministers from the Group of 20 (G20) major economies meeting next week. FSB member countries will now “proactively” analyse vulnerabilities from DeFi as part of regular [monitoring of crypto markets](https://www.financedigest.com/the-hemodynamic-monitoring-systems-market-to-clamber-on-the-shoulders-of-innovation.html "The Hemodynamic Monitoring Systems Market To Clamber On The Shoulders Of Innovation"), the report said. Potential [policy responses may include](https://www.financedigest.com/ing-toughens-oil-and-gas-policy-to-include-trade-finance-midstream.html "ING toughens oil and gas policy to include trade finance, midstream"), for example, regulatory and supervisory requirements concerning traditional financial institutions’ direct exposures to DeFi,” it said. The [collapse of FTX](https://www.financedigest.com/collapsed-ftx-owes-nearly-3-1-billion-to-top-50-creditors.html "Collapsed FTX owes nearly .1 billion to top 50 creditors") last November exposed vulnerabilities in intermediaries and DeFi, the report said. The full extent of the impacts of this failure, including on DeFi projects that were owned by FTX or depended on it for [trading flows](https://www.financedigest.com/commodities-trading-houses-help-keep-russian-oil-flowing.html "Commodities trading houses help keep Russian oil flowing"), will take time to become apparent given the lack of disclosure and transparency in these markets,” the report said. FSB DeFi Graphic 1 https://fingfx.thomsonreuters.com/gfx/mkt/xmpjkrmoqvr/FSB%20DeFi%20Graphic%201.PNG SUPERVISION GAPS The most worrying vulnerability in DeFi relates to “mismatches” in [liquidity from different maturities in liabilities and assets](https://www.financedigest.com/britains-post-brexit-asset-management-revamp-eyes-liquidity-tokenisation.html "Britain’s post-Brexit asset management revamp eyes liquidity, tokenisation"), the report said. Some DeFi arrangements may be “purposefully” cross-border to exploit gaps in supervision, hence the [need for international](https://www.financedigest.com/how-to-choose-the-right-service-for-your-international-money-transfer-needs.html "How to choose the right service for your international money transfer needs") coordination, it added. Until the sharp [retreat in bitcoin](https://www.financedigest.com/dollar-retreats-headed-for-biggest-weekly-loss-since-mid-january-bitcoin-down.html "Dollar retreats, headed for biggest weekly loss since mid-January; bitcoin down") prices and the FTX crash, regulators had largely focused on cryptoassets rather than related technology. The FSB said it would also study the tokenisation – or digital representation – of [real assets which could increase links between crypto markets and DeFi with the wider financial](https://www.financedigest.com/data-fake-will-be-the-new-real-in-financial-services-in-2023.html "Data: Fake will be the new real in financial services in 2023") system and economy. The FSB’s existing recommendations for regulating cryptoassets may [need to be enhanced to cover risks](https://www.financedigest.com/what-banks-need-to-prepare-for-eba-pillar3-disclosure-of-esg-risks.html "What Banks Need to Prepare for EBA Pillar3 Disclosure of ESG Risks") from DeFi, the report said. FSB members will also study how DeFi [activities could come under existing rules for mainstream finance](https://www.financedigest.com/why-finance-teams-need-to-go-beyond-numbers-to-an-active-relationship-with-data.html "Why finance teams need to go beyond numbers to an active relationship with data "). If DeFi activities and entities are deemed to fall within the regulatory perimeter, the enforcement of compliance with applicable [regulations is warranted,” the report](https://www.financedigest.com/chinas-tencent-reports-first-revenue-drop-as-gaming-regulations-and-covid-19-bite.html "China’s Tencent reports first revenue drop as gaming regulations and COVID-19 bite") said. For DeFi activities outside existing rules, new [policies could be needed](https://www.financedigest.com/travel-insurance-small-print-what-you-need-to-know-loopholes-in-policies-that-could-cost-you-a-packet.html "Travel insurance small print – what you need to know Loopholes in policies that could cost you a packet"), it said. FSB DeFi Graphic 2 https://fingfx.thomsonreuters.com/gfx/mkt/mypmokenypr/FSB%20DeFI%20Graphic%202.PNG (Reporting by Huw Jones; Editing by Helen Popper) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---