ESMA assesses market developments in DeFi and explores the smart contracts system

Summary:

The European Securities and Markets Authority (ESMA) has published two articles on decentralized finance (DeFi) highlighting developments and risks in the EU market. The first article emphasizes the risks to investor protection due to the speculative nature of many DeFi arrangements and operational vulnerabilities. Additionally, it notes new forms of market manipulation and potential threats to financial stability. The second article introduces a methodology for categorizing smart contracts using source code and topic modeling, identifying five major categories and monitoring their deployment over time. The article also highlights the increasing complexity of DeFi protocols. ESMA will be hosting a public webinar to discuss the findings of these articles on October 25, 2023, and registration is open until October 23, 2023.