Digital asset business operators expect investment on decentralised finance (DeFi) platforms to continue to see growth next year as the digital asset industry evolves along with blockchain technology, despite a likely tightening of rules by the Securities and Exchange Commission (SEC).
The SEC is conducting a hearing to collect public opinion on the rules barring digital asset fund managers from investing their customers' assets on DeFi platforms and digital asset advisers from recommending their customers invest on the platforms, claiming the platforms expose investors to high risks.
DeFi generally refers to digital assets and financial smart contracts, protocols and decentralised applications, most of which are built on an Ethereum contract. In simpler terms, it's a financial software built on a blockchain.
DeFi allows users to borrow assets from others in the form of a derivative cryptocurrency exchange similar to savings accounts. Some DeFi applications offer high interest rates to support their use in exchange for the high potential risks.
According to the SEC's statement, there have been instances of fraud and cybertheft on DeFi that caused huge damage to investors. The regulator doesn't have the authority to investigate or prosecute the culprits because the power to access and control the digital assets belongs solely to the platform developer.
In the past, there were people interested in providing advice or managing to exploit clients' funds or digital assets through transactions on a DeFi platform, such as lending and borrowing digital assets.
The SEC considers DeFi transactions as new. There are various types and styles of services and some may be subject to various laws.
Most countries are still in the process of determining which agency to supervise such services.
Kannithi Tongtanagoon, co-founder of Cryptomind Group and chief executive of Merkle Capital, said Merkle Capital understands the concerns of the SEC and knows the risks associated with DeFi. As a result, the company separated all assets invested in DeFi from others, leaving 300-400 million baht left in Merkle Capital's fund after the separation.
However, he said as many of its customers showed interest in investing in a DeFi platform, the company established a new private fund investing in DeFi that is not covered by the SEC's law. The fund is currently valued at 1.2 billion baht, Mr Kannithi said.
Merkle Capital established the digital asset fund before the Digital Asset Law was implemented.
The company said it applied for a digital asset fund manager licence from the SEC in February and is awaiting approval.
Palakorn Yodchomyan, co-founder and chief executive of KULAP, a DeFi trading platform with a business licence from the SEC, said the transaction volume on DeFi platforms in Thailand is expected to continue growing next year as the digital asset ecosystem continues to develop, especially with the advancement of blockchain technology and Web 3.0.