FATF Issues Report on Regulating DeFi Risks Amid Explosive Growth

The Financial Action Task Force (FATF) has released a report on regulating decentralized finance (DeFi) risks. According to the report, DeFi represents a significant reconfiguration of financial intermediation and is not just an experiment in virtual assets.

DeFi enables trading, lending, borrowing, liquidity provision, and asset management through blockchain-based smart contracts. The report notes that the total value locked (TVL) in DeFi reached $86.644 billion in 2026, approximately 85% above the 2023 level.

The FATF emphasizes the need to preserve innovation without permitting functional substitutes for regulated finance to escape equivalent safeguards. Regulated institutions will use decentralized infrastructure where it produces efficiency, while supervisors will require comparable financial integrity outcomes whenever equivalent financial functions are performed.

The report updates the 2021 Guidance in light of DeFi's expansion and provides practical tools for identification, regulation, supervision, and investigation. It also develops criteria for identifying controllers or persons exercising sufficient influence over DeFi arrangements.