ESG, Inequality And International Political Economy Problems Inherent In Regulation Of DeFi, Web5/Web3, CryptoCurrencies And Fractional-NFTs

Abstract

This article builds on Nwogugu (2020) which introduced some new criteria for determining the optimal Regulatory-Regimes for Mutual Funds, ETFs and Auction Rate Securities. Around the world, the regulation of Blockchain Economy Products has presented a critical regulatory/policy and Sustainable Growth dilemma. In some countries such as the USA, different federal government agencies have publicly issued conflicting opinions and regulations, and different legislators have issued conflicting statements. In this context, DeFi-products (“DeFi Products”) specifically refers to: i) DeFi loans that are secured by pools of cryptocurrencies and or NFTs; and ii) DeFi Staking (or Yield-Farming) wherein persons temporarily lend or “stake” their cryptocurrencies or NFTs to a “Pool” in exchange for periodic interest payments. The main findings of this study are as follows: i) properly designed and regulated DeFi and cryptocutrrencies can facilitate economic development, Sustainability and Inequality-reduction; ii) DeFi and cryptocurrencies are poorly understood and ineffectively regulated around the world, and thus pose Financial Stability risks and Systemic Risks; iii) three new Theories-Of-regulation were introduced herein; iv) the energy consumption concerns about cryptocurremcies and rumors of the worthlessness of “mined coins” maybe un-justified; v) this article analyzes and critiques the actual and “possible” Regulatory-Regimes for Blockchain Economy Products (cryptocurrencies , Fractional-NFTs, NFTs (non-fungible tokens), DeFi-Products/Yield-Farming, Tokenized Stocks/Bonds, DCCs/DFPCs and DAOs) with the objective of clarifying critical regulatory factors that can significantly affect Sustainable Growth, ESG, Cost-of-Capital, Access-to-Capital for SMEs, Interest Rates and Inequality.

Keywords: DeFi; Web3/Web5; International Political Economy; Financial Innovation; ESG/Sustainability; Financial Stability; Systemic Risk; NFTs; Economic Development.