Does SEC Crypto Staking Crackdown Will Impact DeFi? 

This year Decentralized Finance (DeFi) market set off to a solid start. Earlier week crypto market bullish outburst helped DeFi to regain its $50 billion total value locked (TVL) on Thursday. Meanwhile, the DeFi platforms recently faced significant regulatory challenges.

On Feb 9, the US regulator Securities and Exchange Commission (SEC), charged Kraken with breaching the nation’s security laws. In response, the crypto exchange agreed to shut off its staking service and to pay $30 million in penalties to settle the case, the agency reported on Thursday.

According to Lido, DAO business development head, the sudden crackdown on crypto staking by the US securities regulator might have unintended consequences for DeFi. On Feb 13, Jacob Blish said in a Bloomberg report, “The biggest risk I personally see as a US-based person is if they come down and say you can no longer interact with these types of protocols.”

Despite the US authorities’ tighter regulatory approach on digital assets, the crypto market was bullish in the previous week. The DeFi market regained its $50 billion TVL due to a price rally by Bitcoin and other altcoins. On Thursday, TVL earned nearly $51.1 billion, $8.78 billion held by Lido.

Last week the Financial Stability Board (FSB) released a report on the financial stability risks on DeFi platforms. As per the report, DeFi is quite similar to traditional finance in terms of its functions or the risks it is exposed to. The FSB said DeFi’s unique characteristics might be triggered by these flaws like “Operational fragilities, liquidity and maturity mismatches, leverage and interconnectedness.

At the StarkWare Sessions 2023, the founder and CEO of Aave and ETHLend, Stani Kulechov, pointed to the major issues within the DeFi space. Kulechov pointed out that one of the major challenges in the crypto ecosystem is “less backing in decentralized stablecoins compared with centralized.”

The Platypus Finance, a decentralized finance (DeFi) application, was affected by flash loans on Feb 16, as per CertiK tweets, a smart contract security firm. As per the tweet, the hacker used flash loans resulting in $8.5 million worth of assets loss. Currently, all operations on the platform have been paused.

Earlier Friday, the Platypus community confirmed that the attacker targeted a loophole in the USP solvency verification process. “They used a flash loan to exploit a logic error in the USP solvency check mechanism in the contract holding the collateral,” Platypus tweeted.

Disclaimer

The views and opinions stated by the author, or any people named in this article, are for informational purposes only and do not establish financial, investment, or other devices. Investing in or trading crypto assets comes with a risk of financial loss.

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