Decentralized Finance (DeFi) and Environmental Impact

Abstract

Among the most talked about new technological developments in global finance are cryptocurrencies, digital assets, FinTech (financial technology), RegTech (regulatory technology), and DeFi (decentralized finance). However, very little is actually known regarding its definition, ramifications for the law, and effects on policy. This chapter aims to present DeFi, situate it within the conventional financial industry, establish a connection between DeFi and open banking, and conclude with some policy recommendations. We suggest that decentralization may jeopardize the effectiveness of traditional forms of accountability as well as traditional financial regulation and enforcement. Simultaneously, we discover that reconcentration will occur in a different (perhaps less regulated, less accessible, and less transparent) segment of the value chain where portions of the banking and financial services value cycle are decentralized. In order to guarantee effective oversight and mitigation of risks, DeFi regulation ought to focus on this refocused portion of the supply chain. DeFi&s;s main objective of decentralization actually requires control, not the reverse. Additionally, DeFi might present a chance to create “embedded regulation,” a completely new approach to regulation design. Regulatory strategies may be integrated into the DeFi architecture in its final form, which would decentralize finance, including its regulation.