According to Kristin Johnson, a commissioner of the Commodity Futures Trading Commission (CFTC), deploying artificial intelligence (AI) in the ecosystem of blockchain technology brings new challenges to regulation, risk management, compliance, and enforcement. In the context of decentralized finance (DeFi), AI can be used for automated trading and algorithmic trading. Overall, AI has raised concerns among regulatory agencies regarding risks such as manipulation and fraud, bias, and customer protection.
Johnson points out that one issue with DeFi is the absence of a central authority, which sets it apart from traditional markets. He states, “Firstly, traditional financial laws and regulations typically rely on specific organizations or market structures, whereas decentralized autonomous organizations and blockchain-based platforms using non-intermediated market structures may deviate from these assumptions in significant ways. Deploying AI in the DeFi system may create confusion in the regulatory landscape, especially in formulating long-standing and crucial regulations like the Bank Secrecy Act intended to address money laundering and illicit finance threats in our financial system.”
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