Legal Status of Decentralized Finance: Towards the Articulation of Issue

The paper discusses the issues of legal regulation of decentralized financial services (DeFi). The purpose of the work is to form a systematic understanding of the direction and scope in which they can be regulated based on the DeFi technological features and the nature of the relationships that arise between digital platforms and their users.

The methodological basis of the study is determined by the range of tasks and is focused on the analysis of decentralized finance simultaneously in technological, socio-cultural, political and legal aspects. Structural functional, taxonomic, constructive, situational, innovative, targeted and program-targeted methods form the complexity of the study. Taken together, they allowed us to study DeFi in their systemic unity and formulate the following conclusion. Decentralized finance is an independent model of finance organization both in terms of a set of technical characteristics (the use of distributed registry technology, smart contract protocols, oracles, etc.) and in terms of the nature of relations between the parties (horizontal P2P communications). The identified features allow us to consider them as a separate object of legal regulation. At the same time, it is important to take into account that the matrix of DeFi regulation at the national and international levels should be built in accordance with their taxonomy and assume simultaneous balanced consideration of technological features and product affiliation of services. The legal regulation of decentralized finance in the Russian Federation should primarily be focused on minimizing the risks associated with user identification, as well as determining the legal status of decentralized autonomous societies (DAOs), organizing centralized examination of protocols and preventing cyber attacks.

1. Detsentralizovannye finansy: informatsionno-analiticheskiy doklad Banka Rossii [Decentralized finance: Information and analytical report of the Bank of Russia]. Available from: https://cbr.ru/Content/Document/File/141992/report_07112022.pdf. (In Russ.).

2. Castellani L. Pravovye voprosy, imeyushchie otnoshenie k uproshcheniyu protsedur bezbumazhnoy torgovli i vnedreniyu elektronnogo «edinogo okna» [Legal issues related to the simplification of paperless trade procedures and the introduction of an electronic «single window system»]. Available from: https://eec. eaeunion.org. (In Russ.).

3. Kochergin DA. Ekonomicheskaya priroda i klassifikatsiya steyblkoynov [The economic nature and classification of stablecoins]. Finansy: teoriya i praktika [Finance: Theory and Practice]. 2020;6:141-160. (In Russ.).

4. Maksimov NV, Golitsyna OL, Ganchenkova MG, Sanatov DV, Razumov AV. Semanticheskoe yadro tsifrovoy platformy [Semantic core of the digital platform]. Ontologiya proektirovaniya [Ontology of Designing]. 2018;3(29):412-426. (In Russ.).

5. Sizova DA, Sizova TV, Soltakhanov AU. Perspektivy razvitiya detsentralizovannykh platezhnykh sistem [Prospects for the development of decentralized payment systems]. Vestnik Instituta ekonomiki Rossiyskoy akademii nauk [The Bulletin of the Institute of Economics of the Russian Academy of Sciences]. 2019;6:63-76. (In Russ.).

6. Allen HJ. DeFi: Shadow Banking 2.0? American University Washington College of Law Washington College of Law Research Paper No. 2022-02.

7. Anker-Sørensen L, Zetzsche DA. From Centralized to Decentralized Finance: The Issue of «Fake-DeFi» (December 22, 2021). Available from SSRN: https://ssrn.com/abstract=3978815.

8. Aramonte S, Schrimpf A, Shin Hyun Song. Non-Bank Financial Intermediaries and Financial Stability (January 2022). CEPR Discussion Paper No. DP16962. Available from SSRN: https://ssrn.com/abstract=4026868.

9. Assessment of Risks to Financial Stability from Crypto-assets, February. Financial Stability Board (2022). Assessment of Risks to Financial Stability from Crypto-assets. Available from: https://fsb.org.

10. Crypto Crime Report. Chainalysis. 2022. Available from: https://chainalysis.com.

11. DeFi risks and the decentralisation illusion. BIS Quarterly Review. December 2021.

12. European Commission, Directorate-General for Financial Stability, Financial Services and Capital Markets Union. Decentralized finance: information frictions and public policies: approaching the regulation and supervision of decentralized finance. Publications Office of the European Union, 2022. Available from: https://data.europa.eu/doi/10.2874/444494.

13. Financial Action Task Force (2021). Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers. FATF, Paris. Available from: https://www.fatf-gafi.org.

14. Harvey CR, Ramachandran A, Santoro J. DeFi and the Future of Finance (April 5, 2021). Available from SSRN: https://ssrn.com/abstract=3711777.

15. International Monetary Fund’s global financial stability report October 2021: COVID‑19, Crypto, and Climate: Navigating Challenging Transitions. Available from: https://www.elibrary.imf.org.

16. IOSCO Decentralized Finance Report. Report of the Board of IOSCO. Available from: https://www.dirittobancario.it/wp-content/uploads/2022/03/IOSCO-decentralized-finance-report.pdf.

17. Jensen JR, Wachter V von, Ross O. An Introduction to Decentralized Finance (DeFi). Complex Systems Informatics and Modeling Quarterly, CSIMQ. 2021;26:46-54. Available from: https://doi.org/10.7250/csimq.2021-26.03.

18. Proposal for a regulation of the European Parliament and of the Council on Markets in Crypto-assets, and amending Directive (EU) 2019/1937. Available from: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52020PC0593.

19. Regulatory Approaches to the Tokenisation of Assets, OECD Blockchain Policy Series. Available from: https://www.oecd.org/finance/Regulatory-Approaches-to-the-Tokenisation-of-Assets.htm.

20. Report on Stablecoins. Available from: https://home.treasury.gov/system/files/136/StableCoinReport_Nov1_508.pdf.

21. Stablecoins’ role in crypto and beyond: functions, risks and policy. Available from: https://www.ecb.europa.eu/pub/financial-stability/macroprudential-bulletin/html/ecb.mpbu202207_2~836f682ed7.en.html.

22. Statement on DeFi Risks, Regulations, and Opportunities. Available from: https://www.sec.gov/news/statement/crenshaw-defi-20211109.

23. Yue Li, Hongxia Wang, Mauro Barni. A survey of deep neural network watermarking techniques. Available from: https://arxiv.org/pdf/2103.09274.pdf.