WEF Urges Regulatory Sandboxes For DeFi Innovation

According to Cointelegraph, the World Economic Forum (WEF) has called on policymakers and regulators globally to conduct decentralized finance (DeFi)-related innovations and experiments within regulatory sandboxes. This approach aims to focus on tailored risk mitigation and transparency. In its recent assessment of nine major economies, including the United States, the United Kingdom, Japan, and the United Arab Emirates, the WEF identified the need for a customized approach to regulating the DeFi ecosystem. The report recommended using sandboxes to keep DeFi investments within regulatory frameworks, allowing for controlled experimentation while managing associated risks and ensuring transparency. The WEF's assessment highlighted that countries adopting a “nimble, sandbox-first approach” to address inherent risks showed signs of progress in DeFi innovation. The organization supported using a controlled environment for experimentation with digital assets and decentralized protocols, noting that the success of regulatory sandboxes underscores the potential for collaborative innovation in DeFi. The report also revealed that only 9% of all jurisdictions studied have applied existing financial regulation to digital assets. The UK, Hong Kong, and Singapore were the only jurisdictions that have established or are developing a tailored regulatory framework for stablecoins. Additionally, around 33% of jurisdictions lack a regulatory framework and are not currently working on one. The WEF emphasized the importance of collaboration between regulators and DeFi platforms to ensure consistent communication about the risks involved. The report suggested that licensing models that account for the decentralized nature of DeFi have facilitated progress. It also highlighted the misalignment between traditional financial regulations and decentralized economies, urging policymakers and regulators to explore ways to protect consumers, maintain market integrity, and promote innovation by adjusting requirements and parameter definitions for decentralized networks. In a related development, the European Blockchain Sandbox Initiative (EBSI) recently onboarded 41 authorities and regulators from 22 countries to participate in the second cohort of its blockchain sandbox initiative. This project aims to provide a framework for blockchain projects, regulators, and authorities to engage in dialogue and identify legal and regulatory obstacles to blockchain innovation.