The Security and Exchange Commission (SEC) in Thailand has warned its citizens who are investors against the risk in the DeFi sector. It claimed that the industry has an ecosystem that does little to prevent firms from folding up abruptly.
Thailand SEC Warns Investors Of Risks In the DeFi Sector
The crypto industry continues to gain maturity and worldwide recognition alongside increasing theft and crime rates. Also, these projects have crashed while some went into debt lately, causing investors to lose their funds.
Consequently, the crypto sector has become a center of attraction for security watchdogs worldwide. According to reports, Thailand’s SEC recently issued a statement that urged the Taiwan investor to beware of the DeFi Sector’s risks.
It claimed DeFi lacks a critical system that can keep projects from rug pulling or overleveraging on collateral. It added that the Sector’s plan does not implement terms and conditions that ensure users’ funds are safe.
It continued that the sector is not under any regulatory framework in the region. Hence, the regulator urges investors to run thorough background checks before investing in a DeFi project.
DeFi allows the algorithm system of the smart contract to make financial decisions. Hence, its operation does not need the supervision of any middleman or third party.
Nonetheless, some risks are involved in DeFi transactions, like some complex products and services risks. Also, some projects exceed their collateral limits, thereby losing their funds and expected ROI.
SEC Plans To Introduce An Holistic Crypto Regulatory Framework
According to the SEC’s reports, DeFi projects often have technical and security issues. It cited an instance where malicious developers steal investors’ funds by rug-pulling their projects.
Rug pull works when a team uses fat ROI to attract many investors to a particular project. Afterward, they would make them invest and then pull the project off.
Consequently, the tokens investors hold would become useless and worthless. The developers would then run away with users’ funds.
According to reports, the warnings came when two DeFi projects suspended users from withdrawing their funds. On 21 July, Zipmex, a digital asset broker, halted withdrawal from its Thailand and Singapore branches.
The report revealed that many fraudulent activities have been happening in the crypto industry lately. In addition, statistics showed that 97% of the total $1.7 billion funds stolen in the crypto industry as of May 2022 came from the DeFi sector.
As a result of the multiplying risks, the SEC revealed that it is currently deliberating on a new crypto regulatory framework. It added that the current framework does not expound on lending and borrowing cryptos and other crucial parts.
Hence, SEC and other government officials are reportedly working on a new and general regulatory framework that would ensure the safety of investors.