The U.S. Treasury Department has recently released a 42-page report evaluating the possible risks associated with decentralized finance (defi). The Report states that cybercriminals, ransomware hackers, thieves, and fraudsters are all utilizing defi to “transfer and launder their illicit proceeds.” The Treasury’s report warns that defi could threaten national security and calls for policymakers to increase oversight.
U.S. Treasury Report Assesses Vulnerabilities of Decentralized Finance
The U.S. Treasury Department released a report on April 6, 2023. This assessment assesses the purported risk of defi. “The risk assessment explores how illicit actors exploit defi services and vulnerabilities unique to defi services to inform efforts to identify and address potential gaps in the United States’ AML/CFT regulatory, supervisory, and enforcement regimes,” According to the national treasure and finance department. The report was written and edited by Treasury All officials, Brian NelsonThe Treasury’s undersecretary for terrorism and financial intelligence.
“Defi services at present often do not implement AML/CFT controls or other processes to identify customers, allowing layering of proceeds to take place instantaneously and pseudonymously, using long strings of alphanumeric characters rather than names or other personally identifying information,” The report includes. It Recognizes also that certain firms provide AML/CFT controls, and that there are onchain surveillance companies. However, Nelson and the report’s authors maintain that these controls and monitoring practices “do not adequately address the identified vulnerabilities on their own.”
The Defi report also discusses ways in which the Treasury Department intends to strengthen federal oversight, and regulatory policies. The authors stress that “centralized virtual asset service providers (VASPs) and industry solutions can partially mitigate some of these vulnerabilities.” The Treasury Department Regulations that govern traditional finance must also apply to decentralized financing. Regulators should close any gaps that money launderers and cybercriminals exploit. Interestingly, despite the report’s 42-page length, the Treasury report authors concluded that illicit financing is an issue. “remains a minor portion of the overall virtual asset ecosystem.”
On The conclusion, recommendations, and questions are on page 36. Researchers emphasize that cybercriminals and nation-state adversaries don’t typically use crypto assets for illicit financing. “Moreover, money laundering, proliferation financing, and terrorist financing most commonly occur using fiat currency or other traditional assets rather than virtual assets,” the report’s authors conclude.
What What are your thoughts on the U.S. Treasury Report that evaluates the potential threats of defi? Let us know your thoughts in the comment section below.
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