The Thai Securities and Exchange Commission (SEC) has asked cryptocurrency investors in the country to be careful with DeFi transactions. The country’s financial watchdog argued that local regulators have little or no control over the fast-growing industry. The watchdog said anything is possible, from overleveraged collateral to rug pull, adding that it has no control over such incidents.
The regulator said these in a statement on Wednesday where it also mentioned that the DeFi market has become popular especially lending and deposit taking services. They however mentioned that these services have enormous risk because the mechanisms to control operations that enforce the terms in smart contracts are absent on DeFi platforms.
The watchdog further enumerated the risks, noting that overleveraged collateral and lack of accurate information on terms, conditions and functionality could leave investors exposed to exploitation. DeFi platforms lure investors with promises of high returns but the hidden risks including the possibility of rug-pull should not be overlooked. Thai’s SEC warning came after Zipmex paused all withdrawals for local customers on 21st July.
Out of $1.7 billion of stolen digital assets from the beginning of the year till May, 97% belonged to DeFi according to a Chainalysis report. On May 13, a DappRadar report revealed that DeFi’s total value dropped to $83.4 Billion. This is a 48% drop from the beginning of the year and a major part of that decline (40%) happened over the past seven days.
During the negative market downturn from May to July, there was a large exodus of investors from DeFi to stablecoins then fiat, leading to a massive dump of DeFi tokens. DeFi’s market cap tanked 75% in Q2 from a nominal $142 billion to $36 billion in three months as per industry reports.
Thai’s SEC also disclosed that it was planning a review of digital asset regulatory guidelines and reiterated that it does not support DeFi transactions (lending and deposit taking), either in centralized or decentralized finance. The regulator is also discussing the issue with other stakeholders to determine the best regulatory guidelines to protect investors.
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