The Securities and Exchange Commission (SEC) is warning investors to exercise caution when making decentralised finance (DeFi) transactions, saying there are risks and they do not fall under the supervision of the country's regulators.
In a statement issued on Wednesday, the SEC said DeFi services and investments are becoming more and more popular, especially DeFi that offers deposit taking and lending services.
DeFi is a decentralised financial service based on blockchain that does not rely on intermediaries by using a mechanism to control various operations to meet the conditions set through smart contracts. Proponents believe the technology represents the future of financial services.
But the SEC warned that using digital assets for further benefits, such as lending or reinvesting via such services, often show high returns to incentivise traders to enter into transactions.
"However, any DeFi transaction carries a number of risks, including the risks from the products and services which can be complicated," the statement noted.
The risks that could occur include lending of digital assets exceeding the collateral value (overleverage), and the risk that investors may not receive sufficient information or be exploited by service providers. There are also technical and security risks including terms, conditions and functionality that may have vulnerabilities. There is also the possibility of being deceived or defrauded such as a "Rug Pull", which is when a cryptocurrency project team flees with an investor's money.
"Therefore, investors are advised to study any DeFi programme before joining the programme and should be exercised carefully in transactions as deposit taking and lending services are not regulated by the financial and capital market regulators in Thailand," the statement added.
The SEC's warning came after two cryptocurrency lending platforms reported serious problems recently. Zipmex, a cryptocurrency exchange that operates in Singapore and Thailand, announced on July 21 that the company had halted withdrawals as the fallout from a series of defaults spreads further throughout the digital-assets industry.
The Asian platform is the latest to succumb to financial difficulties stemming from exposure to troubled crypto lenders Babel Finance and Celsius Network. Celsius Network filed for bankruptcy, while Babel Finance ran into a liquidity problem, according to a recent news report.
On Aug 17, Bitkub Ventures under Butkub Capital Group Holdings, Thailand's largest digital asset exchange operator, announced that it invested in KillSwitch, the Thai DeFi platform.
The statement also acknowledged that the SEC is in the process of considering a review of digital asset regulatory guidelines. It does not support deposit taking and lending transactions, either in the form of decentralised finance or centralised finance. Additionally, the regulator is in discussions with relevant authorities to determine regulatory guidelines to protect investors properly.