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If digital assets engage in decentralized exchanges, they are also required to obtain a license. He mentioned that numerous DeFi initiatives need to be decentralized, yet a small number of individuals or officials control the majority of the tokens. The Hong Kong SFC must look beyond their superficial assertions to examine the essence of the matter. Some DeFi protocols may appear decentralized in name, but in reality, a limited number of developers possess a significant amount of Governance tokens that require scrutiny based on their content rather than their claims.
DeFi is open source with the expectation that the broader community may uncover vulnerabilities, but this openness also presents an opportunity for attackers to determine how to exploit it.
The US risk assessment has highlighted several significant hacks and incidents in DeFi over recent months, including North Korea’s utilization of DeFi for money laundering and other related issues regarding whether DeFi projects adequately fulfill customer needs or comply with anti-money laundering (KYC/AML) regulations, or if they are susceptible to theft.
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The US report stated: “This vulnerability could become more complex if smart contracts are not meticulously crafted, or if they lack a mechanism to deactivate or modify quickly when a critical vulnerability is identified and confirmed.” “Thus, it is crucial for DeFi services to recognize and address potential vulnerabilities and exploits within open source code.”
Nevertheless, the report indicates that DeFi remains a vital sector in the evolution of cryptocurrencies. Recommendations include “enhancing existing monitoring and enforcement actions” to comply with regulatory standards for improved engagement in private sector initiatives.
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