DeFi, by definition, cannot be fully regulated, Siam Commercial Bank president says

Published at: July 26, 2021

Arak Sutivong, CEO of SCB 10X and the president of Siam Commercial Bank (SCB), has offered an insight into how one of the largest venture capital funds in Southeast Asia views the future of decentralized finance (DeFi) when it comes to the contentious question of regulation.

SCB 10X is the venture arm of SCB, Thailand's oldest bank, and mostly focuses on investing in blockchain-based financial services, such as DeFi and digital assets.

In his opening speech at SCB 10X’s second annual global DeFi virtual summit, REDeFiNE, Sutivong stressed that by now, DeFi had broken through to the mainstream “by many measures.” In terms of growth, he noted that the sector had seen a tenfold increase over the past six months, with over $100 billion in total value locked in the DeFi ecosystem this year. By many other metrics — including users, traded volume on exchanges and developed decentralized applications — the sector, he said, has witnessed “tremendous growth.”

With all this development and excitement, however, Sutivong emphasized that several issues continue to loom over the nascent industry, observing that “there are some concerning areas such as fraud that we keep hearing in the news. There has been a lot of concern from industry stakeholders and regulators.” Tackling this over the medium- and long-term poses unique challenges, in his view, given that:

“DeFi, by definition, cannot be fully regulated. Instead, there needs to be a framework for how DeFi can be integrated with the rest of the financial ecosystem.”

Sutivong’s remarks on sustainability and evolving approaches to regulatory compliance follow a series of interventions by global regulators and organizations, ranging from the proactive to the outright hostile.

In early June, the World Economic Forum published a policy toolkit for DeFi, proposing ways to balance countervailing needs, such as fulfilling aspirations for decentralization and privacy, while mitigating illicit activities such as money laundering. More specifically, the toolkit addressed concerns that new regulatory interventions could impose significant costs on DeFi startups, discouraging smaller participants from entering the market.

These concerns have been particularly acute for many DeFi developers who are unsure about how the Financial Action Task Force’s recommendations for regulating virtual asset service providers will affect them.

In early June, Dan M. Berkovitz, commissioner of the United States Commodity Futures Trading Commission, stated he believes that DeFi derivatives platforms might contravene the country’s Commodity Exchange Act and thus be illegal.