SEC seeks to regulate decentralised finance

SEC seeks to regulate decentralised finance

DeFi projects may need to have licences

Logo of the Securities and Exchange Commission building on Vibhavadi Rangsit Road in Bangkok.
Logo of the Securities and Exchange Commission building on Vibhavadi Rangsit Road in Bangkok.

Activities related to decentralised finance (DeFi) projects which involve digital coin issuance may require a licence from the regulator in the near future, the Securities and Exchange Commission (SEC) announced.

The statement was released on Sunday afternoon after a DeFi farming platform named Tuktuk Finance debuted on Bitkub Chain in the morning. The price of TUK token, the native token of Tuktuk Finance, soared to several hundred US dollars and then collapsed to $1 within just a few minutes.

It is the first official announcement on DeFi from the SEC. Earlier, it was not clear which regulators would have oversight over DeFi transactions in the country.

DeFi has been a challenge for regulators around the world as there are many emerging financial technologies related to DeFi such as popular blockchain-based decentralised financial services, both lending and borrowing, which use smart contracts instead of traditional financial intermediaries, decentralised securities exchanges, asset management, as well as the issuance of digital tokens.

"The issuance of digital tokens must be authorised and overseen by the Securities and Exchange Commission and the issuer is required to disclose information and offer the coins through the token portals licensed under the Digital Asset Decree," the SEC said.

The business operator should consider the regulations before proceeding while traders should study the technical and security aspects of DeFi farming before getting involved.

Dome Charoenyost, founder of Tokenine the developer of MVP Coin Project, said the warning is the right thing to do as the law gives the SEC the authority to regulate coin issuance and supervise licensed intermediaries.

"It has become clearer that some types of DeFi are under-regulated, and we could see the SEC-regulated DeFi platforms in the future," said Mr Dome.

However, the regulations might not be able to fully protect traders because most DeFi transactions are not operated by Thai firms. The majority of Thai DeFi developers also remain anonymous.

Niran Pravithana, co-founder and CEO of Ava Advisor, said the announcement is reasonable as there are many fraudulent tokens issued for sale online with retail traders flocking hoping to catch some gains.

"These criminals can hide in messenger application Telegram and manipulate the token prices and these illegal activities can easily go undetected by the authorities," said Mr Niran.

He said it would be better if the regulator opens a safe space for businesses with a quick approval process to allow them to learn by trial and error with their projects to avoid the loss of opportunities.

Mr Niran also noted that there still remain some questions regarding how to define what can be considered an initial coin offering (ICO) through decentralised platforms or digital exchanges.

Akaradet Diawpanich, CEO of Merkle Capital and chairman of Cryptomind Group Holdings, suggested three keys factors for traders to consider before putting the money to DeFi farming. First Total value locked (TVL) of the DeFi should be up from US$100 million. As well, the operating period should be long enough and audited in a way that will help verify the coding of computer programs and filter out the coding risks that could cause what is known in crypto jargon as a "rug pull", and in English as fraud.

He said some traders place large amounts of principal to farm stablecoins in hopes of high returns without considering the principal risk, believing the price of stablecoins does not fluctuate. Such a belief is not quite correct.

"Indeed, there is a risk that the principal could be lost from several factors such as the security risks including cyberattacks and malicious scams due to inadequate cybersecurity or technical glitches," Mr Akaradet said.

He said traders should find additional information, check search engines and other sources about the creditability of the platform, its development team, or the venture capital company claimed to be an investor.

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