FATF: DeFi with Identifiable Controllers Should Be Regulated as Virtual Asset Service Providers

The Financial Action Task Force (FATF) stated in a report released on Tuesday that if there are identifiable individuals retaining control or sufficient influence in a DeFi arrangement, its rules apply, regardless of how decentralized the project claims to be. The FATF pointed out that many DeFi projects still exhibit centralized elements in practice, including the concentration of governance tokens, management authority, upgrade control, and fees and rewards flowing to insiders. The report categorizes DeFi into three types: those with identifiable controllers, those that are actually centralized but whose operators are hidden, and those that are truly leaderless, with only the last category not subject to its standards. The report noted that nearly 93% of jurisdictions responding to the survey have not applied the relevant standards to any qualifying DeFi arrangements, with only 26 out of 142 jurisdictions having assessed the risks, 4 having established licensing rules, and only 2 having registered or licensed relevant platforms. The FATF calls on countries to encourage DeFi projects to embed anti-money laundering controls into smart contracts or interfaces; for platforms that refuse to cooperate, jurisdictions may prohibit their operation locally as a last resort. The report also stated that the total value locked in DeFi reached $86.6 billion this year, an increase of about 85% compared to 2023.

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