Digital Assets and Decentralized Finance: An Opportunity or Challenge for the Financial System?

Russia’s digital asset market only recently started to develop following the adoption of the law on crowdfunding (2019) and the law on digital financial assets (2020). Yet, it is already making significant progress, as evidenced by the diversity of digital financial assets (DFAs) and the ‘hybrid’ digital rights that have been issued. There has recently been a sharp surge in the issuance of DFAs. For example, just one year ago, the volume of DFAs issued was worth about RUB 2 billion, while as of the end of May 2024, the total volume of DFAs issued is already estimated at more than RUB 106 billion with 400+ issues completed. Players on the decentralized finance market expect interest in DFAs to skyrocket in the near future. And the main issue on which this market depends involves ways to attract liquidity. Some representatives of the digital assets market believe that to increase its volume, improvements need to be made to legislation and the existing regulatory arbitrage needs to be eliminated. For their part, traditional financial market players believe that in order to boost interest in digital assets, they should be harmonized with conventional financial instruments by weakening the regulation of the latter. What are the priorities of the decentralized finance market? What barriers exist in its development and need to be lifted to help attract liquidity to the market? What do we need to do to develop the market considering the approaches that are being taken in the adoption of digital finance laws?