The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) has opened its Regulatory Laboratory (RegLab) sandbox program for the 5th cohort of applications today. The 5th Reglab application is open until July 15, 2022, and will focus on innovation in financial services powered by decentralized applications and protocols.
ADGM’s Reglab is a tailored regulatory regime for fintech participants which is designed to foster innovation within the UAE financial services market, for new entrants and existing financial and regulated companies. The theme of the 5th Reglab is “DeFi”, an emerging part of the global financial ecosystem that holds the promise of delivering more efficient and tailored financial services.
DeFi has gained traction in recent years, presenting chances to alter financial service delivery. By engaging with smart contracts based on distributed ledger technology (DLT) and virtual assets, DeFi offers direct access to financial services without the need for an intermediary financial institution, lowering intermediation costs. A decentralized autonomous organization (DAO) that manages community treasuries using a multi-signature wallet is an example of DeFi. By developing an effective system for regulating the transfer of value between decentralized Web 3.0 services, the creation of robust and efficient DeFi services can help lay a strong foundation for Web 3.0.
While DeFi has the potential to benefit the financial services industry, it also comes with significant concerns. The FSRA recently released a discussion paper in order to start a conversation with the sector, which can help the agency determine future policy choices to manage these risks through suitable regulations. In order to fully realize the potential benefits of DeFi, any future regulatory framework must ensure that the relevant risks are minimized.
