Lack of regulatory oversight in decentralised finance

There is a lack of regulatory oversight in decentralised finance, according to a new study.

The work from the Cyber Security Innovation (CSI) Centre looks into regulatory blind spots of decentralised finance (DeFi). Unlike traditional financial systems, DeFi operates in a way which means there is no central authority to regulate and monitor transactions. The research sheds light on the vulnerabilities and risks associated with this emerging technology.

Aston University researchers have recently showcased research findings around the blind spots within decentralised finance (DeFi), shedding light on the vulnerabilities and risks associated with the emerging technology. 

The study was conducted by a team of experts from the University's Cyber Security Innovation (CSI) Centre, including Professor Vladlena Benson and Dr Bogdan Adamyk, both of whom have extensive experience in cryptocurrencies.

Members presented their research and highlighted so-called blind spots to the European Central Bank in Frankfurt, Germany. A further study is now under way, offering mitigating measures to reduce the risk of money laundering through the emergent technology, led by Professor Vladlena Benson, Dr Adamyk and Dr Anitha Chinnaswamy.

One of the key blind spots identified in the study is the lack of regulatory oversight in DeFi. Unlike traditional financial systems, DeFi operates in a manner that means that there is no central authority to regulate and monitor transactions. This creates a potential loophole that could be exploited by criminals looking to launder money or carry out fraudulent activities.

"The CSI has been benchmarking the regulatory environment for the decentralised technologies for some time as our research on cryptocurrency forensics informs new tools for international law enforcement," says Professor Vladlena Benson, director of the CSI Centre at Aston Business School.

Dr Bogdan Adamyk, a research fellow in cyber security at the CSI Centre at Aston University, adds, "Our research shows that there are significant blind spots in DeFi that need to be addressed if this technology is to become a mainstream alternative to traditional finance. 

"By highlighting these vulnerabilities, we hope to raise awareness and encourage the development of more robust security measures in DeFi."

The Cyber Security Innovation (CSI) Centre at Aston, established in 2020, brings together stakeholders from industry, government and leading cyber security research institutions with the aim to deliver industry-aligned cyber security research outcomes. CSI members include globally-recognised researchers delivering outcomes that have impact and address real-world cyber security challenges through innovative solutions.

The Cyber Security & Innovation Centre aims to have more forward-thinking industry, government and academic institutions (both in the UK and internationally) join the CSI.