Market Misconduct in Decentralized Finance (DeFi): Analysis, Regulatory Challenges and Policy Implications

ArXiv ID: 2311.17715 “View on arXiv”

Authors: Unknown

Abstract

Technological advancement drives financial innovation, reshaping the traditional finance landscape and redefining user-market interactions. The rise of blockchain and Decentralized Finance (DeFi) underscores this intertwined evolution of technology and finance. While DeFi has introduced exciting opportunities, it has also exposed the ecosystem to new forms of market misconduct. This paper aims to bridge the academic and regulatory gaps by addressing key research questions about market misconduct in DeFi. We begin by discussing how blockchain technology can potentially enable the emergence of novel forms of market misconduct. We then offer a comprehensive definition and taxonomy for understanding DeFi market misconduct. Through comparative analysis and empirical measurements, we examine the novel forms of misconduct in DeFi, shedding light on their characteristics and social impact. Subsequently, we investigate the challenges of building a tailored regulatory framework for DeFi. We identify key areas where existing regulatory frameworks may need enhancement. Finally, we discuss potential approaches that bring DeFi into the regulatory perimeter.

Keywords: DeFi Regulation, Market Misconduct, Blockchain Compliance, Taxonomy, Regulatory Frameworks, Crypto / DeFi

Complexity vs Empirical Score

  • Math Complexity: 2.0/10
  • Empirical Rigor: 3.5/10
  • Quadrant: Philosophers
  • Why: The paper focuses on taxonomy, comparative analysis, and regulatory policy with minimal advanced mathematics or quantitative models, and while it references case studies, it lacks the heavy data processing or backtesting typical of empirical work.
  flowchart TD
    A["Research Goal:<br>Analysis of Market Misconduct in DeFi"] --> B["Methodology"]
    B --> C["Data & Inputs:<br>Blockchain Transactions<br>Empirical Measurements"]
    B --> D["Framework:<br>Taxonomy Development"]
    C --> E["Computational Analysis:<br>Comparative Analysis &<br>Empirical Measurement"]
    D --> E
    E --> F{"Key Outcomes"}
    F --> G["Definition & Taxonomy<br>of DeFi Misconduct"]
    F --> H["Regulatory Challenges<br>Identification"]
    F --> I["Policy Implications &<br>Framework Recommendations"]