Study Overview
Research on regulating emerging financial technologies ("FinTech") has been siloed to individual branches. Instead, this paper present a high-level view of various FinTech branches and analyzes the economic incentives of each. By focusing on the dynamics and parallels between the branches, the paper offers new insights for optimal regulation that balances the costs and benefits as use cases expand.
Study Results
Decentralized Finance (DeFi) which combines advances from the AI and blockchain branches, reduces the cost of coordinating complex financial services. Yet the efficiency gains intertwine with potential legal risks associated with liability, financial crime, dispute resolution, jurisdiction, and taxes. To ensure financial stability, effective regulatory solutions include adapted definitions and safe harbors, regulatory sandboxes, self-regulatory organizations, and/or policing misleading characterizations (e.g., regarding the extent of decentralization or agreed to data uses).
Intervention: Regulation
IBSI Funding Acknowledgement: Lab for Inclusive FinTech (LIFT)