On January 25, the Florida Office of Financial Regulation (OFR) issued a advice to investors “to raise awareness of decentralized finance (DeFi), a relatively new blockchain-based group of financial services that is gaining popularity[.]The OFR defines DeFi as “financial services provided by an algorithm on a blockchain, without a traditional financial services company”. The notice describes DeFi, the underlying technology, how DeFi loans work, and potential risks.
According to OFR Commissioner Russell C. Weigel, III, “DeFi-based businesses offer lending, banking, and investment options that are decentralized and independent of traditional financial markets. This evolution of financial services is not necessarily a bad thing and can be a good thing, but before getting involved in any business or product in the DeFi market, take reasonable steps to understand the risks of this technology and what blockchain-based emerging markets. The Office of Financial Regulation is committed to allowing innovation to grow and thrive while protecting Floridians from bad actors, but the best practice is to educate yourself before you risk your money.
The OFR recommends that before making a decision about a financial services company or professional, investors educate themselves about the potential risk. He also notes that DeFi investment opportunities and markets are new, generally very volatile, appear to be driven more by psychological factors than investment fundamentals, and that many investment opportunities in digital assets are not are not asset-backed.