FATF Calls for Pragmatic Approach to Regulating Decentralized Finance
The decentralized finance (DeFi) landscape has grown rapidly in recent years, with the value of assets locked in DeFi arrangements reaching $86.6 billion in 2026, an increase of about 85% since 2023, according to a report by the Financial Action Task Force (FATF).
DeFi applications operate without traditional intermediaries such as banks or brokers, using smart contracts to facilitate transactions. However, this decentralization also raises questions about who is responsible when financial services are delivered through code rather than a traditional institution.
The FATF report highlights that control over DeFi technology may not be truly decentralized. Developers can still influence the system by making changes or updates, and companies may own voting power or run websites that access the service.
Regulators should focus on identifying who actually controls or influences a DeFi arrangement, rather than how it describes itself. The report recommends that jurisdictions consider licensing or registration requirements for DeFi arrangements that provide financial services, and that regulators explore new tools such as blockchain analytics to manage illicit finance risks.