From Centralized to Decentralized Finance: The Issue of 'Fake-DeFi'

21 Pages Posted: 14 Dec 2021 Last revised: 27 Dec 2021

See all articles by Linn Anker-Sørensen

Linn Anker-Sørensen

Ernst & Young Norway; University of Oslo - Faculty of Law

Dirk A. Zetzsche

Universite du Luxembourg - Faculty of Law, Economics and Finance; European Banking Institute

Date Written: December 22, 2021


While decentralized finance is one of the latest buzzword in the FinTech space, this paper argues that the reality is a phenomenon we call “Fake-DeFi”, that is a decentralized application in which innovators or service providers hold governance rights, or the technical equivalent of governance rights, which would they could modify the fundamentals of the whole network. The reason for Fake-DeFi are partly legal and regulatory, but for the main part Fake-DeFi is inherent in the market logic: innovators want to capitalize on their inventions. Making profits in a fully decentralized network is incredibly difficult. Hence, innovators turn to the less difficult alternative to create only partially centralized networks and services over which they hold various degrees of control. Fake-DeFi will remain the eminent business model even if law and regulation would provide legal and regulatory certainty and smooth supervision for a cross-border fully decentralized network.

Fake-DeFi asks for a regulatory response. Regulators facing Fake-DeFi as wide-spread phenomenon are encouraged to review laws and regulations relating to governance rights and modes of control. The former includes, but is not limited to, rules on major shareholders and beneficial ownership relating to regulated intermediaries, fitness and properness of key personal, organizational and prudential requirements of dominant shareholders, as well as the definition of financial services groups.

Keywords: Decentralized Finance, FinTech, BigTech, Distributed Ledger Technology, Financial Regulation, Nodes, Major Shareholders, Beneficial Ownership

Suggested Citation

Anker-Sørensen, Linn and Zetzsche, Dirk Andreas, From Centralized to Decentralized Finance: The Issue of 'Fake-DeFi' (December 22, 2021). Available at SSRN: or

Linn Anker-Sørensen

Ernst & Young Norway ( email )


University of Oslo - Faculty of Law ( email )

PO Box 6706 St Olavsplass
Oslo, 0130

Dirk Andreas Zetzsche (Contact Author)

Universite du Luxembourg - Faculty of Law, Economics and Finance ( email )

Luxembourg, L-1511


European Banking Institute ( email )


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