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In 2022, DeFi may use DAO governance to mitigate regulatory risks: Report

In its annual report, KuCoin Labs argues, “If DeFi wants to eliminate regulatory risk, the structure of DeFi governance will progressively become a DAO.”

KuCoin Labs, the investing and research department of crypto exchange KuCoin, has released its annual report, predicting that decentralized finance (DeFi) would continue to be a major trend in the crypto market in 2022, with governance managed by decentralized autonomous organisations (DAOs).

The hazards of cash loss inside the DeFi ecosystem are becoming more obvious as the ecosystem continues to be afflicted by criminal whales. As a result, efforts to regulate decentralized finance began to gain traction in 2021, and the sector has begun to face regulatory action in the last year.

As regulators tighten their grip on DeFi, KuCoin Labs believes the sector will turn to DAO governance to mitigate regulatory risks:

“If DeFi’s goal is to reduce regulatory risk, DeFi governance will evolve into a DAO.”

A DAO that prioritizes community interest, according to KuCoin Labs, can achieve “real governance decentralization.” As a result, the exchange predicts that the sector will see a shift in DeFi governance, with alternative methods being used to coordinate it.

The essential operational concepts of DAOs, according to KuCoin Labs, are sensible enough to be used as foundations for the construction of legal companies. While the market may not see a breakthrough in DAO expansion this year, the report states that fine-tuning their procedures may pave the way for their acceptance by businesses and enterprises.

Meanwhile, the blockchain-based protocol Syndicate recently revealed that in just three weeks, 450 new DAOs were founded on its platform. It claims that this accounts for 10% of all DAOs currently in existence.

Aside from that, the Marshall Islands recently recognized DAOs as legal entities, allowing them to register and function legally under the sovereignty of the Pacific island nation. As a whole, this demonstrates that the DAO governance structure is beginning to gain traction in the blockchain world.


Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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