Regulating Decentralized Finance (DeFi): Striking a Balance Between Innovation and Security

Document Type : Research Paper

Author

Assistant Professor, Department of Law, Azarbaijan Shahid Madani University, Tabriz, Iran

10.22034/law.2026.65518.3451

Abstract

Decentralized Finance (DeFi), which uses distributed ledger technology (DLT), enables financial services without central intermediaries. These features increase transparency and reduce transaction costs, thereby creating new opportunities for innovation in the financial sector. However, because of its decentralized structure, DeFi faces significant challenges, including fraud, cyberattacks, and credit risk. The absence of central intermediaries and comprehensive regulatory frameworks may lead to the loss of assets and harm to users. Furthermore, the rapid growth of this market and its technical complexity have raised concerns regarding the stability of the financial system and the security of users. The main question addressed in this article is what challenges decentralized finance faces and what practical solutions Iranian law can provide in response to these challenges. At the end of this study, which is conducted using a descriptive–analytical research method, it will be demonstrated that regulating decentralized finance presents numerous challenges due to its inherently decentralized nature, and that no unified regulatory approach has yet emerged. Regulatory measures should therefore be designed in a way that enhances transparency and security in this market and strengthens public trust, without hindering innovation. An appropriate regulatory approach would be a multi‑layered one that includes the use of regulatory chokepoints such as centralized exchanges, oversight of code, and the establishment of internal monitoring mechanisms.

Keywords

Main Subjects

References

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Jurisprudence and Islamic Law
Volume 17, Issue 42
March 2026
Pages 223-249

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