JEAIL > Volume 16(2); 2023 > Issue Focus
Research Paper
Published online: November 30, 2023

Legal Issues in Designing DeFi Regulation

Young Yoon Park
Yulchon LLC
Parnas Tower, 38th Floor, 521 Teheran-ro, Gangnam-gu, Seoul 06164 Korea.
Corresponding Author:

ⓒ Copyright YIJUN Institute of International Law
This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License ( University Law School, 100 Inharo, Michuhol-gu, Incheon 22212 Korea. / nses/by-nc/3.0/) which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited.

This paper presents factors to consider when designing DeFi regulations. DeFi regulations may be established by imposing obligations on developers and operators, who exist even in extreme decentralization cases. However, the requirements in current financial legislation, which heavily rely on intermediaries’ organization and personnel, are difficult to apply to DeFi. Instead, under DeFi, information can be obtained, analyzed, and aggregated on the blockchain and reported to the authority automatically and regulatory requirements may be reflected in the smart contract and automatically executed. This may require mandatory code audits by supervisory authorities and civil technology experts prior to execution, to check whether legal requirements are embedded in the code. In addition, measures addressing the risk-contagion effects in macroeconomic crisis, potentially arising from DeFi’s connectivity with traditional finance, must be considered.

Keywords : DeFi, Blockchain, Finance Regulation, Financial Intermediary, Embedded Regulation, Code Audit

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