Thailand’s Crypto Clampdown Has Eyes Set on DeFi

The Thai Securities and Exchange Commission released a statement on Sunday stating that decentralized finance (DeFi) requires license after a volatile debut by TukTuk Finance on the Bitkub Chain.

By
Chung Yee
on
June 2, 2021
Category:
Blockchain News

Regulating the DeFi Space

Tuktuk Finance is a DeFi platform that allows for yield farming, with a Total Value Locked (TVL) of $13,442,726.87 at the time of writing. It debuted on 28th May, 2021 and saw massive price swings from a few hundred dollars to $1 in a matter of minutes. Whilst it is common for new coins to pump and dump after listing, this price movement was enough to capture the attention of the regulator.   

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In Thailand, the concept of crypto assets is gaining traction among the populace. Although Thailand is still conservative in its regulatory approach, it has been progressive in crypto adoption. They have actively acknowledged its presence, and seem invested in progressing the sector. In 2019, Thailand approved its first (Initial Coin Offering) ICO Portal function to vet issuers’ applications before the proposed digital tokens can be offered to the public. On May 16, 2018, Thailand officially regulated the crypto market, showing their effort to integrate cryptocurrency into the country. 

However, the DeFi space is a totally different creature altogether. Financial products in the legacy system have always been closely monitored and regulated. The broad categorization of crypto assets and their existing framework may not be the right regulatory solution; DeFi is relatively new and within a short period, DeFi has been gaining traction. To extend the existing framework that applies to the traditional market may be an ill fitted solution - especially considering the unique qualities it possesses that enable interesting use-cases.


Understanding DeFi Regulation

DeFi was meant to convert traditional finance into a series of automated protocols removing intermediaries. The most basic of all financial services such as borrowing, lending, derivatives and exchanges are immediate platforms that have functionalities which can be addressed by open source protocols. But it doesn’t stop there. Once these basic functionalities are automated, it can be composed just like lego blocks to produce more complex protocols. The feature of composability is what makes the entire system very attractive and innovative. 

In the United States, two regulatory bodies, namely the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), have the role of monitoring financial markets. In a decentralized system, the dynamics of interaction between the parties are different, making regulating the market and the players in the market an uphill task.    


Education Is the Way Forward

Secretary-General of the Thai Securities and Exchange Commission (SEC)


Thailand has taken a very progressive stance as its way forward, which is promising news for the DeFi community. Despite their engagement, they have been somewhat strict regulatory-speaking, taking a proactive approach when it ordered BitKub, a cryptocurrency exchange in Thailand to temporarily shut down to fix issues on its platform. In March, the regulator took it one notch further by conducting live sessions on social media to clarify regulations in the crypto space. The unhealthy price swing is worrisome and it can trap new investors that are caught in the euphoria, which is a dilemma facing those who are deciding DeFi regulations.

What It Means

The price volatility in Tuktuk Finance’s native token isn’t confined to DeFi projects, and regulators have an unclear path ahead of them. Identifying the need for proper disclosures by the issuer pursuant to the Digital Asset Decree will increase the transparency and risk management by the investors that wishes to participate. Perhaps it is a prudent approach because DeFi projects are more complicated compared to other types of tokens. Additionally, the exchange operator can issue prompts on additional risk factors that exist in DeFi. The sector has tapped into just a sliver of what it is capable of, and regulators must make that realization in order to provide a just regulatory infrastructure.

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Chung Yee

Chung Yee has a legal background and has been involved in research works for the legal and compliance industry. Writing is his passion, centered on topics such as the blockchain and finance.

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