On Thursday, the US Treasury Department published a report titled “Illicit DeFi Risk Assessment 2023,” warning about the risks associated with decentralized finance (DeFi) and its potential use by suspected cyber criminals.
This report marks the first time that a U.S. State published an official warning against the decentralized market.
The document in question evaluates the risks associated with DeFi services, noting that although the definition of DeFi is not clear, protocols and services involving cryptocurrencies that allow transactions and smart contracts fall under the new alert.
The Treasury warns that many of the services claiming to be blockchain-based are not necessarily decentralized, which can lead to fraudulent activities.
Furthermore, the report notes that criminals benefit from the DeFi, with North Korea being among the primary beneficiaries of the technology. The US Treasury alleges that thieves, ransomware hackers, scammers, and other agents use these platforms for money laundering.
Brian Nelson, the Treasury’s Undersecretary for Terrorism and Financial Intelligence, claims that the bill should underpin future discussions on the illicit use of DeFi, stating, “Capturing the potential benefits associated with DeFi services requires addressing these risks.
In addition, the report suggests that the private sector should take the assessment’s findings into account while formulating its own risk management strategies. It also advises that they should take necessary measures in compliance with AML/CFT regulations and sanctions obligations to prevent any illicit actors from exploiting DeFi services.
The study recommends that the Biden administration reinforces regulation of the market and considers additional guidance to the private sector on AML/CFT obligations. It also suggests that the government should evaluate enhancements to address any AML/CFT regulatory gaps related to DeFi services.
It remains unclear what impact this first state study on DeFi risks will have, particularly coming from the US Treasury, which is responsible for imposing sanctions on countries and companies worldwide. However, the new report indicates that pressure is growing in the cryptocurrency market, specifically targeting decentralized platforms.
