Regulatory Challenges and Compliance in Decentralized Finance (DeFi)

Abstract

Decentralized Finance (DeFi) is an emerging force transforming the global financial landscape by leveraging blockchain technology to eradicate the middlemen and assist peer-to-peer financial transactions. However, a decentralized and pseudonymous nature brings a big challenge in its regulation and compliance, especially in Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, market misconduct and adaptation, new cryptocurrency innovations, and safety and security issues. This paper comparatively analyses the two regulatory frameworks, compliance mechanisms, technical adaptations, and measures of cybersecurity regulating DeFi in India and the United States. By examining the salient regulatory challenges and compliance strategies in both jurisdictions, this study aims to provide insights that help foster a balanced regulatory environment that promotes innovation without undermining financial stability or consumer protection.