The Ministry of Finance wants to legalize decentralized financial organizations
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The Ministry of Finance wants to legalize decentralized financial organizations (DeFi DAO) to ensure the flow of liquidity into digital financial assets (DFAs). According to officials, this will not require much change in regulation. However, experts consider the symbiosis of DAO and DFA to be unrealistic. But, in their opinion, integration of DAO in the financial sector with government services is possible.
The Ministry of Finance allows the legalization of the work of decentralized financial organizations in Russia, Ivan Chebeskov, director of the department’s financial policy department, said at the Crypto Summit 2023 forum. The official proposes to use “the liquidity in crypto assets that citizens already have, so that they can invest in DFAs under Russian law.”
Currently, the register of information system operators that can issue DFAs includes 10 platforms. Only the Moscow Exchange is included in the register of exchange operators that allow the exchange of assets between platforms. Mr. Chebeskov believes that this number will be reduced or even a single platform aggregator will remain, “which ideally would also have access to decentralized finance and crypto-assets.” In the near future, the Ministry of Finance will come up with legislative initiatives to legitimize DAO, the official noted. It will be sufficient to be able to classify already created LLCs as digital DAOs.
DAO is a decentralized autonomous organization. In the context of DeFi, we are talking about decentralized organizations that manage projects related to the provision of financial instruments. Governance of the DAO is in the hands of project participants (through voting). As of September 12, the total volume of assets blocked for the needs of DeFi projects was estimated at $37 billion.
The head of the development of digital projects at BitRiver, Alexander Baryshnikov, assesses the possibility of introducing the work of decentralized financial organizations into the Russian legal framework as “definitely positive.” At the same time, he considers it necessary to “establish comprehensive legal regulation of the circulation of cryptocurrency and mining, as a source of pure cryptocurrency liquidity.” Work towards the formation of a legal framework for the cryptocurrency market in the Russian Federation has been going on since 2017. The Law on Digital Financial Assets came into force on January 1, 2021, but so far the segment has primarily hosted one-off issues that are purchased by a limited number of investors.
However, a number of experts surveyed consider the idea of integrating DFA with DeFi to be unrealistic. According to the founder of Cross Finance, Alexander Mamasidikov, the decentralized finance market is characterized by “anonymity and the rejection of centralized schemes,” while digital financial services are characterized by “centralized control.” Meanwhile, DAOs “do not need any permissions in order to exist” – they “submit only to the mathematical laws underlying cryptographic algorithms,” emphasizes the head of InDeFi Smart Bank Sergei Mendeleev.
Don’t forget about the risks of DAO, experts say. According to BerezkaDAO and Weezi co-founder Roman Kaufman, these include difficulties in scaling to the level “needed to serve the entire population,” vulnerability to attacks, and a lack of effective regulatory mechanisms. According to Mr. Mamasidikov, at the moment “not a single country has a ready-made legal framework that would allow regulating the decentralized finance market.”
At the same time, the state can use DAO to provide financial services, for example, to manage a pension fund or provide loans to small businesses, Mr. Kaufman said. Additionally, he explains, DAOs can be used to create decentralized exchanges that offer lower fees and a wider selection of assets than traditional exchanges.
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