EEA released the first standard on decentralized finance (DeFi) protocols, a first in the industry. And, most importantly, the founding document drafted by industry leaders has come in to provide the definitive guide to developers and founders, as well as critical resources to regulators to grade and license projects.
Already, key hubs such as the UAE’s Abu Dhabi Global Market and Europe’s Sandbox program have incorporated the paper into their updated requirements for DeFi projects. The guidelines are fortunate to be informed by a tremendous amount of expertise in various sectors of decentralized finance and accounting approaches dealing holistically and industry-informed with the assessment, management, and mitigation of risks associated with DeFi activities.
DeFi where, by definition, no accounting standards exist was another reason these guidelines were sought so desperately by the EEA in the face of overall regulatory ambiguity. The document has made an attempt to fill this gap by approaching and providing a structured way of understanding and addressing this singular problem area of the DeFi landscape.
“This standard is crucial from the security perspective,” underlined Dyma Budorin, EEA DRAMA Working Group Co-Chair and CEO of Hacken. “Proper documentation is a cornerstone of seamless operation and security of a project,” he noted, not failing to denote that this standard is the first comprehensive resource where founders and developer teams can lean on.
Ethereum DeFi Risk Assessment Guidelines
The DeFi Risk Assessment Guidelines are referred to as “the pioneering document to compile a list of risks for protocols in the DeFi space with mitigating strategies,” and as such, it covers much more detail on what a project should do in documentation and data coverage.
As far as it applies to institutional participants, the risks covered by the guidelines go into the software, governance, market, credit, and regulation compliance for DeFi protocols, with full attention to details on mitigation strategies.
Much can be inferred from the guidelines, which can basically be a user’s manual the details are to be made while laying guidelines for drafting structures, the data to be included, all in a uniform format.
These guidelines will help regulators make sure they apply the same approach to DeFi security and compliance in their project assessments and licensing decisions worldwide. Institutional participants, on the other hand, will manage DeFi complexities by referring to the guidelines to improve market stability and confidence.
The document comes, likewise, at a time where most major developments within the industry are taking place: crypto exchange-traded funds, large-scale players jumping onto the tokenization of assets, a recent rise in large-scale market activities within the DeFi space, etc. The EEA contends that this influx makes the new normal essential for ensuring security and compliance.
The standard was developed and will be maintained by the EEA’s DRAMA Working Group with collaboration among industry leaders in blockchain and financial standards. Contributors already committed to the standard include: OpenZeppelin, ConsenSys, EY, Hacken, CertiK, Quantstamp, QualiTX, Noves, C4, Cryptio, DeFi Safety, Entersoft, SAP, Bitwave, DT.
Michael Lewellen, Head of Solutions Architecture at OpenZeppelin, explained how quickly the DeFi industry is growing due to the risks that are unique in a combination of financial and technical attributes. The new standard, he added, would be “essential reading” for businesses and institutions looking to save passage into the DeFi ecosystem and assure safe entrance through these unchartered waters.
According to Chaals Nevile, director of technical programs for EEA and also the editor of the guidelines, development was a collective effort of the members to help the larger fraternity and ecosystem.
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