Nature of Decentralised Finance (DeFi)

Is a DeFi lending protocol considered a legal entity?

"Given the difficulty in identifying a single person to regulate for DeFi applications built on a fully public and decentralised blockchain, we could see the development of innovative supervisory technologies (sometimes referred to as suptech or embedded supervision), which harness blockchain and smart contracts to exercise supervisory functions without relying on the regulation of intermediaries or institutions.

Authorities may also find it useful to have a voluntary registration system for DeFi applications. Applicants can be required to have a corporate entity and designated persons such as an administrator, who is appointed to carry out the representative and fiduciary functions in the administration of the corporate entity.

Malta has implemented something similar to regulate distributed or decentralised ledgers, smart contracts, and decentralised autonomous organisations. This approach may encourage participants in the DeFi industry to establish joint ventures or other co-operative models to assume the governance and liability of operating the platform. This also serves to provide some guidance and protection to DeFi application users or investors."

Source: Osborne Clarke, last revised 9th October 2020