DeFi Not Doomed: Analyst Weighs in on Global Securities Report 

In response to the International Organization of Securities Commissions (IOSCO) report, concerns have surfaced about the potential ramifications for decentralized finance (DeFi). While some view the recommendations as a threat, Matthew Harcourt, an analyst at Apollo Crypto, argues that these proposals do not pose an “existential risk” to DeFi. In this analysis, we delve into the IOSCO report, examining its implications for the DeFi ecosystem and assessing the resilience of established protocols. 

Published on December 19, the IOSCO report highlighted the unique challenges DeFi poses to regulators due to its often anonymous and decentralized nature. The report proposed nine recommendations aimed at regulating the sector, including the exposure of “responsible persons” and subjecting DeFi to the same rules as traditional financial markets. The reaction from some quarters, such as Trading Protocol co-founder Mikko Ohtamaa, characterized the document as a potential “death knell” for DeFi. 

Apollo Crypto’s Harcourt Defends DeFi Amid IOSCO Report Scrutiny 

Matthew Harcourt, representing Melbourne-based investment fund Apollo Crypto, dismisses the doomsday narrative, emphasizing that the IOSCO report recognizes DeFi as an “important, evolving, and expanding technological innovation.” Harcourt contends that the media’s portrayal of the recommendations as bearish news is an oversimplification, suggesting a more nuanced interpretation. 

IOSCO, with 130 members regulating 95% of the global securities market, recommended that policymakers identify “responsible persons” within the DeFi space and hold them accountable to existing rules for traditional financial services. Harcourt points out that these proposed regulations may have a more significant impact on early-stage innovation within DeFi, imposing stringent requirements for establishing a business. 

Can DeFi Escape the Grip? 

The IOSCO report defines “responsible persons” as individuals exercising control or “sufficient influence” over a final DeFi product or service. Drawing parallels between the economic functions of DeFi and traditional financial markets, the report asserts the applicability of existing international policies, standards, and regulatory frameworks to DeFi activities. 

Moreover, IOSCO advocates for the regulation of decentralized autonomous organizations (DAOs) in the same manner as any other financial services firm that chooses to incorporate. The report asserts that irrespective of labels, organizational forms, or technologies used, entities offering financial products and services and engaging in financial activities should be subject to applicable laws. 

Harcourt: DeFi’s Future Bright Despite Regulatory Shadows 

Harcourt acknowledges that the IOSCO recommendations may not align with privacy ideals and are likely to impact early-stage protocols more significantly. However, he maintains that the fundamental benefits of on-chain financial applications mitigate the risk of these regulations posing an existential threat to DeFi. 

The analyst suggests that the proposed regulations may impede early-stage innovation within DeFi but emphasizes that established protocols with a robust foundation are unlikely to face an outright assault. Harcourt’s optimism stems from the belief that the intrinsic advantages of on-chain financial applications will help DeFi adapt and thrive in the face of evolving regulatory landscapes. 

It’s crucial to note that on November 17, IOSCO had unveiled recommendations for regulating the broader crypto market, aligning with its stance on DeFi. The organization proposed that digital asset markets be regulated in accordance with many existing laws governing traditional finance.