Thai SEC Cautions Investors About Risks of DeFi Transactions

The Securities and Exchange Commission of Thailand (Thai SEC) has asked crypto investors in the country to be careful with DeFi transactions, terming them risky.

The watchdog argued that local regulators have no control over the up-and-coming industry.

Popular but Not Full-Proof

In a statement on Wednesday, the financial and capital markets watchdog said DeFi services have become popular, especially deposit taking and lending services. But these services are risky as the mechanism to control operations that enforce terms in smart contracts may be absent in DeFi platforms. 

“Therefore investors are advised to study any DeFi programme before joining… as deposit taking and lending services are not regulated by the financial and capital market regulators in Thailand,” media reports quoted from Thai SCE’s statement. 

Further enumerating the risks, the watchdog noted that overleveraged collateral and lackaccurateoper information about terms, conditions, and functionalitcould can leave the investors exposed to exploitation. DeFi platforms lure investors into transactions showing high returns, but there are hidden risks, including the possibility of the rug-pull, it added.  

Thai SEC’s warning comes in the wake of crypto exchange Zipmex halting withdrawals for its local customers on July 21. Zipmex’s decision stemmed from liquidity problems arising out of its $53-million exposure to troubled lending platforms Babel Finance and Celsius Network. 

Echoes with Current DeFi Slump

According to a Chainalysis report, out of $1.7 billion of stolen digital assets from the beginning of the year till May, 97% belonged to DeFi. 

A DappRadar report on May 13 said that DeFi’s total value locked dropped to a nominal $83.4 billion, down 48% since the beginning of the year, with a major part of the decline (over 40%) taking place in the last seven days. 

During the market meltdown from May to July, there was a massive exodus of investors from DeFi to stablecoin and then to fiat, leading to the dumping of DeFi tokens. As per industry reports, DeFi’s market cap tanked 75% in Q2 from a nominal $142 billion to $36 billion in three months.   

Thai Regulators Planning a Review

The SEC statement also asserted that the regulator is planning a review of digital asset regulatory guidelines and clarified that it doesn’t support DeFi transactions – deposit taking and lending – either in centralized or decentralized finance.

It’s also discussing the matter with other stakeholders to determine regulatory guidelines to protect investors.