The government is soliciting input from the private sector, development partners and other stakeholders to build a robust legal framework for the burgeoning decentralised finance (DeFi) space, which has garnered widespread attention regionally and globally.
DeFi is an umbrella term for the part of the crypto ecosystem encompassing novel ways of providing peer-to-peer financial services, in which traditional centralised intermediaries like banks are replaced by automated protocols.
US-based Grand View Research Inc reported the size of the global DeFi market at $13.61 billion in 2022, and predicted that figure to jump 20 per cent to $16.33 billion this year, before rocketing to $231.19 billion in 2030, amounting to a compound annual growth rate (CAGR) of 46.0 per cent between 2023 and 2030.
But at the same time, DeFi protocols “as victims” accounted for $3.1 billion or 82.1 per cent of the total $3.8 billion in cryptocurrency stolen by hackers in 2022, according to the US-headquartered Chainalysis.
Transparency, seen as one of DeFi’s greatest selling points, also introduces exploitable vulnerabilities. “Hackers can scan DeFi code for vulnerabilities and strike at the perfect time to maximise their theft,” the blockchain analysis firm said.
In Cambodia – much like the rest of the world – digital technologies have changed daily life activities and habits, and are an increasingly important part of sustainability initiatives in work, business, learning and teaching, especially since the advent of Covid-19, Ministry of Economy and Finance secretary of state Ros Seilava said on April 4.
To this end, the government adopted the Cambodia Digital Economy and Society Policy Framework 2021-2035, a common framework and roadmap, to promote the digital transformation process vis-a-vis all actors in the socio-economic system, he recalled.
Seilava was speaking at a workshop on the roles of DeFi and data protection frameworks in financial technology (fintech) development in Cambodia.
“Today’s workshop aims to collect additional input, taking into account aspects related to DeFi as well as data protection frameworks,” he said, noting that these frameworks have made the agenda of many a regional and global forum.
“It has been pointed out that DeFi is on the rise and receiving loads of attention, but much uncertainty remains surrounding the roles of the enabling technologies, which are still in pilot phases,” he said, calling for consideration and guarantees to ensure that benefits outstrip risks when it comes to DeFi.
Kong Marry, head of the General Secretariat of the Digital Economy and Business Committee (DEBC), commented at the workshop that emerging technologies – especially those empowering DeFi – are changing the way financial transactions are conducted, while raising new questions about how traditional regulations may apply.
“Such financial activities and transactions are generally understood not to require intermediaries or regulation, running on technologies such as blockchain with the ability to create irreversible transparency and security on their own,” he said.
Regulators the world over are brainstorming policies and frameworks that promote the use of these technologies, while also ensuring governance, he stressed.
“In this sense, in formulating fintech development policies in Cambodia, it is necessary that we set clear directions by laying out a framework for the management of such activities,” he argued, underscoring that the adoption of digital payment systems is gaining traction.
Marry also shared a number of relevant statistics.
At end-2022, there were 14.3 million deposit accounts and 3.7 million credit accounts in the formal banking sector, as well as 17.9 million e-wallet accounts, with “payment service transactions” closing the year higher at approximately one billion, worth $272.5 billion, he claimed.
At the same time, the Cambodia Securities Exchange (CSX) held a free-float market cap of $1.87 billion for domestic listed companies, which have – since the local bourse’s 2012 inception – raised a cumulative $317.55 million, he said, adding that the volume of derivatives trading in the Kingdom totalled $300.51 million in 2022.
Similarly, the Insurance Regulator of Cambodia (IRC) reported that the Kingdom’s formal insurance sector – comprising 40 licensed insurers – registered gross written premiums (GWP) to the tune of $331.866 million for 2022, up 10.68 per cent on-year, as well as total assets and shareholder’s equity at $976.987 million and $417.125 million, respectively, up 14.85 per cent and 12.97 per cent.