Ethereum Enterprise Alliance (EEA) has launched the first standard for decentralized finance (DeFi) protocols.
It is a fundamental document developed by industry leaders, meant to serve as the go-to instruction for developers and founders.
It can also serve as a basis for regulators assessing and licensing projects.
For example, UAE’s Abu Dhabi Global Market (ADGM) and the EU’s Sandbox program already use the document for the updated requirements to projects.
“This document draws on the expertise in various areas of DeFi and accounting that its contributors bring, to provide a broad-based and industry-backed guide to the risks involved in working with DeFi, and how to assess, manage, account for and mitigate them,” the document stated.
The overall regulatory ambiguity and “general lack of accounting standards and guidance for DeFi” show the need for these Guidelines, it added.
Its creators noted that this is the first version of the guidelines. It will be further enhanced through feedback.
Dyma Budorin, EEA DRAMA Working Group Co-Chair and Hacken CEO, commented that “from a security perspective, proper documentation is a cornerstone of seamless operation and security of a project.”
This standard is the first comprehensive resource founders and developer teams can rely on while working on their products. Budorin said.
A Go-To Instruction for Industry Entrants, Regulators, and Institutional Participants
The press release describes the DeFi Risk Assessment Guidelines as “the pioneering document to compile a list of risks for protocols in DeFi space along with the mitigation strategies, which includes the comprehensive list of documentation a project should have and data to include into it.”
The Guidelines outline and explain DeFi risks spanning software, governance, market, credit, and regulatory compliance.
Furthermore, they outline potential mitigation strategies, particularly for institutional participants.
Each section includes a description of the risks, as well as best practices on risk assessment and mitigation.
Specifically, for protocol founders and developers, the Guidelines will be “a go-to instruction” on documentation needed for a protocol.
This includes explanations on what documents are needed, what their structure should be, what data to include, and in which format to include it.
Next, regulators can use it when assessing projects and making licensing decisions. This way, the Guidelines will encourage “a consistent global approach to DeFi security and compliance,” the creators said.
Institutional participants will use Guidelines to identify and mitigate potential risks, thus “better [navigating] the complexities of DeFi [and] contributing to overall market stability and confidence.”
The rise of crypto exchange-traded funds (ETFs), the tokenization of assets, and the recent bull run have brought massive players into the industry. But their entrance “makes this standard vital,” the team argued.
Industry Leaders United through the Ethereum Enterprise Alliance
EEA’s DRAMA Working Group has produced the standard and will maintain it.
To create this document, the team brought together leaders in 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 EEA itself.
Michael Lewellen, the Head of Solutions Architecture at OpenZeppelin, noted that the DeFi industry is “still rapidly evolving with an ever-expanding set of new financial products and subsequent challenges.”
There is a “unique mix” of financial and technical risks that the new entrants must account for, he said. Therefore, this Standard will be an “essential reading” for businesses and institutions that want to enter the DeFi ecosystem safely.
Chaals Nevile, EEA Director of Technical Programs and Editor of the Guidelines commented that “developing these guidelines has been, and continues to be, a collaborative effort of the members of EEA, for the benefit of the industry and broader ecosystem as well as the participating organizations.”
The Ethereum Enterprise Alliance is a global community of blockchain leaders, adopters, innovators, developers, and businesses.
Together, they are accelerating business Ethereum through professional and commercial support, advocacy and research, standards development and ecosystem trust services, the website states.
You can find the full member list here.
