Cryptoasset Anti-Financial Crime Specialist (CCAS) Certification Practice Test

Why might regulators focus on virtual asset service providers (VASPs) rather than decentralized finance (DeFi)?

1. DeFi is lower risk.

2. There are too many intermediaries in DeFi.

3. DeFi is becoming obsolete.

4. There is no central legal entity in DeFi.

The correct answer is: There is no central legal entity in DeFi.

Regulators tend to focus on virtual asset service providers (VASPs) because VASPs typically have a defined legal entity, making it easier for regulators to impose compliance requirements, monitor activities, and enforce laws. Unlike traditional financial institutions, VASPs operate at the intersection of technology and finance, offering a readily identifiable point of accountability. In contrast, decentralized finance (DeFi) platforms usually lack a central legal entity. This decentralized nature presents significant challenges for regulators, as there is no single entity to hold accountable. The absence of a central authority makes it difficult to implement regulations effectively, as DeFi protocols operate autonomously and can have multiple, sometimes anonymous, participants. Therefore, since VASPs provide a clearer target for oversight and enforcement actions, they become the focal point for regulatory scrutiny. The other options do not address the core reasons for regulatory focus. The idea that DeFi is lower risk does not accurately reflect the complexities and associated risks within the space. The claim about intermediaries in DeFi is misleading as DeFi is structured to minimize intermediaries rather than include them. Furthermore, the assertion that DeFi is becoming obsolete does not align with current trends, as the DeFi sector continues to evolve and attract significant investment and interest.