The Ethereum Enterprise Alliance (EEA) has introduced the first standard for decentralized finance (DeFi) protocols.
This important document, created by industry experts, is designed to be the main guide for developers and founders.
It can also help regulators when they are evaluating and licensing projects.
For instance, the Abu Dhabi Global Market (ADGM) in the UAE and the EU’s Sandbox program are already employing this document to revise their project requirements.
“This document draws on the expertise of its contributors in different areas of DeFi and accounting to offer a thorough, industry-backed guide.”
It explains the risks of working with DeFi and how to assess, manage, account for, and reduce them,” the document stated.
The overall regulatory uncertainty and “general lack of accounting standards and guidance for DeFi” highlight the need for these guidelines, it added.
Its creators noted that this is the first version of the guidelines and that it will be improved based on feedback.
Dyma Budorin, EEA DRAMA Working Group Co-Chair and Hacken CEO, said that “proper documentation is crucial for the smooth and secure operation of a project from a security perspective.”
“Budorin said, “This standard is the first all-encompassing resource that founders and developer teams can depend on when developing their products.”
A Key Resource for Industry Entrants, Regulators, and Institutional Participants
The press release describes the DeFi Risk Assessment Guidelines as “a groundbreaking document that identifies risks for DeFi protocols and offers strategies for mitigation. It also provides a detailed list of the necessary documentation and data”. It also includes a detailed list of necessary documentation and the data that should be included.”
The Guidelines detail and explain DeFi risks associated with software, governance, market dynamics, credit, and regulatory compliance.
Additionally, they outline potential mitigation strategies, especially for institutional participants.
Each section includes a description of the risks and best practices for risk assessment and mitigation.
For protocol founders and developers, the Guidelines will serve as “a go-to instruction” on the documentation required for a protocol.
This includes explanations on which documents are needed, their structure, the data to include, and the format for including it.
Regulators can use it to assess projects and make licensing decisions. This approach will promote “a consistent global approach to DeFi security and compliance,” according to the creators.
Finally, according to the press release,
“Clear and standardized guidelines are crucial as institutional investors begin entering the crypto space,” the press release stated.
Institutional participants will use the Guidelines to identify and mitigate potential risks, helping them “better navigate the complexities of DeFi and contribute to overall market stability and confidence.”
The rise of crypto exchange-traded funds (ETFs), asset tokenization, and the recent bull run have attracted major players to the industry. However, their entry “makes this standard essential,” the team argued.
Industry Leaders United through the Ethereum Enterprise Alliance
The EEA’s DRAMA Working Group has created and will maintain the standard.To develop this document, the team assembled leaders from the blockchain and financial industries, including OpenZeppelin, ConsenSys, EY, Hacken, Certik, Quantstamp, QualitaX, Noves, C4, Cryptio, DeFi Safety, Entersoft, SAP, Bitwave, DTCC, Coinchange, Relm, and the EEA itself.
Michael Lewellen, the Head of Solutions Architecture at OpenZeppelin, noted that the DeFi industry is “still rapidly evolving with a continually expanding array of new financial products and related challenges.”
He mentioned that there is a “unique mix” of financial and technical risks that new entrants need to consider.
Therefore, this Standard will be “essential reading” for businesses and institutions aiming to enter the DeFi ecosystem safely.
Chaals Nevile, EEA Director of Technical Programs and Editor of the Guidelines, noted that “developing these guidelines has been, and continues to be, a collaborative effort among EEA members, benefiting both the industry and the broader ecosystem.”
both the industry and the broader ecosystem, as well as the participating organizations.”
The Ethereum Enterprise Alliance is an international network of blockchain leaders, adopters, innovators, developers, and businesses.
Together, they are accelerating business use of Ethereum through professional and commercial support, advocacy and research, standards development, and ecosystem trust services, according to the website.
Introduction to the DeFi Risk Assessment Guidelines
1. What Are the DeFi Risk Assessment Guidelines? The DeFi Risk Assessment Guidelines are a comprehensive standard introduced by the Ethereum Enterprise Alliance (EEA). This document aims to guide developers, founders, and regulators in managing risks associated with decentralized finance (DeFi) protocols.
2. Who Created the Guidelines? The Guidelines were developed by a collaborative team of industry experts from the blockchain and financial sectors. This includes prominent organizations such as OpenZeppelin, ConsenSys, EY, Hacken, Certik, and many others.
Purpose and Benefits
3. How Can Developers and Founders Use These Guidelines? For developers and founders, the Guidelines provide a framework for assessing and mitigating risks in DeFi projects. They outline necessary documentation and best practices to ensure security and compliance.
4. How Are Regulators Expected to Utilize the Guidelines? Regulators can use the Guidelines to evaluate and license DeFi projects, ensuring that they meet current security and compliance standards. This promotes a consistent global approach to DeFi regulation.
Implementation and Adoption
5. Which Institutions Are Already Using the Guidelines? Institutions like the Abu Dhabi Global Market (ADGM) in the UAE and the EU’s Sandbox program are already employing these Guidelines to update their project requirements.
6. What Do the Guidelines Cover? The Guidelines detail various risks related to software, governance, market dynamics, credit, and regulatory compliance in DeFi. They also provide strategies for mitigating these risks, particularly for institutional participants.
7. What Is Included in the Detailed Documentation List? The Guidelines offer a detailed list of required documentation and data for DeFi protocols, ensuring that all necessary information is collected and presented in a standardized manner.
Future Developments
8. How Will the Guidelines Evolve? The Guidelines are designed to be a living document, with updates and improvements based on feedback from users and stakeholders as the DeFi space evolves.
9. Why Is Proper Documentation Important? Proper documentation is emphasized to ensure the smooth and secure operation of DeFi projects. It is crucial for assessing risks and ensuring compliance with regulatory standards.
Industry Impact
10. Who Benefits from the Guidelines? The Guidelines benefit the industry, the broader ecosystem, businesses, institutions, and regulators by providing a unified approach to managing DeFi risks and contributing to market stability and confidence.
