Japan pushes for restrictions on the ‘benefits and potential’ of DeFi.

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Decentralized finance has been making headlines for some time now, stealing business from centralised financial institutions and disempowering conventional middlemen. Its growth has been fueled by institutional investors’ interest in the area and millions of dollars coming into it globally. However, regulatory agencies have been sluggish to catch on, with no formal framework for its regulation in place.

Sensing this wide gap, Japan’s Financial Services Agency (FSA) in its latest report on FinTech addressed the importance of laying out rules for the DeFi space. While the report took notice of the “benefits and opportunities” that the system provides, it also raised concerns about how DeFi can escape existing regulations.

Japan’s crypto-industry has been booming since the very start, with almost 3.5 million citizens trading digital assets. Moreover, between October 2020 and February 2021, the monthly transaction value went up from 73 million yen to 417 million yen. The nation’s virtual currency deposits also hit a record high in March this year, soaring to 1.41 trillion yen, growing 7 times from the previous year.

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The progressive research stated that there may be a quick growth in DeFi adoption across the country, catering to the demands of younger generations through the introduction of new financial services while enhancing access to financial goods and services.

It did, however, address the need for laws in the event of smart contract failure or leveraged agreements. DeFi regulation has been difficult across the world since these entities, unlike banks and other middlemen, cannot be held accountable. Furthermore, regulatory agencies have been unable to keep up with the fast multiplication and growth of new technologies and goods. Non-compliance can also result in strict repercussions, as faced by Binance and Bybit recently. Japan’s long tryst with technology has allowed its leaders to be first movers in terms of crypto-regulations.

Earlier in May, the Bank of Japan had issued another report that tackled DeFi and its governance. The progressive research stated that there may be a quick growth in DeFi adoption across the country, catering to the demands of younger generations through the introduction of new financial services while enhancing access to financial goods and services.

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It did, however, address the need for laws in the event of smart contract failure or leveraged agreements. DeFi regulation has been difficult across the world since these entities, unlike banks and other middlemen, cannot be held accountable. Furthermore, regulatory agencies have been unable to keep up with the fast multiplication and growth of new technologies and goods.

Source: DeFi Pulse

While greater market declines have temporarily slowed its development, the attached chart shows the huge increase in DeFi investments over the last year. While the TVL was at $55.72 billion at the time of writing, it had touched an ATH of $88 billion in May.

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