India’s Ministry of Finance recently shared its stance on Decentralized Finance (DeFi) in response to a question in the Rajya Sabha. Minister of State (MoS) for Finance, Pankaj Chaudhary, provided insights into this emerging sector, highlighting both its potential and the challenges it poses to the country’s traditional financial system.
While acknowledging DeFi’s innovation, the Ministry raised concerns over its risks to economic stability, financial integrity, and consumer protection. During India’s G20 Presidency, the Ministry collaborated with global institutions like the International Monetary Fund (IMF) and the Financial Stability Board (FSB) to create a Synthesis Paper on Policies for Crypto Assets. This paper identifies key vulnerabilities within the crypto ecosystem, including stablecoins and DeFi.
Stability Risks of Decentralised Finance, also flagged the unregulated and decentralized nature of DeFi, which can expose users to significant risks. Adding to this, the Reserve Bank of India (RBI) has frequently warned about the economic, legal, and security dangers associated with crypto assets, which currently lack regulatory oversight in India.
Minister Chaudhary laid the groundwork for regulations, highlighting the need for a balanced regulatory framework that fosters DeFi innovation while addressing associated risks. Though global guidelines from the IMF and FSB serve as a foundation, India is still developing specific regulations.
The initial focus remains on stablecoins and unbacked cryptocurrencies, with plans to address DeFi challenges in the future. The ministry stressed the importance of financial literacy in promoting user education.
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