DeFi Solicitors & Lawyers | Decentralised Finance Legal Services

The Regulatory Frontier of Decentralised Finance

Decentralised finance represents one of the more provocative experiments in financial history: the proposition that financial intermediaries - banks, exchanges, custodians - can be replaced with smart contract code executing on public blockchains.

Lending without lenders. Exchanges without exchange operators. Yield generation without fund managers. The regulatory implications of this proposition are profound, and Australian regulators have made clear they intend to apply existing frameworks to these novel arrangements.¹

TLDR:

DeFi protocols are not exempt from Australian financial services law - ASIC applies technology-neutral regulation focused on economic substance, not technical implementation

An Australian Financial Services Licence (AFSL) is likely required if your protocol facilitates dealing in financial products, regardless of decentralisation claims

Yield products pooling investor funds may constitute managed investment schemes under the Corporations Act 2001 (Cth), triggering registration and disclosure obligations

ASIC's Enhanced Regulatory Sandbox offers up to 24 months of testing with reduced licensing requirements - but sandbox graduation still requires full licensing

Credit activities trigger separate licensing under the National Consumer Credit Protection Act 2009 (Cth) - DeFi lending is not automatically exempt

The regulatory implications of decentralisation are profound. Financial services law has developed over centuries on the assumption that identifiable intermediaries sit between capital and its deployment. DeFi protocols challenge this assumption, raising questions that existing frameworks were never designed to answer.

When a lending protocol operates through immutable smart contracts, who bears the regulatory obligations that would attach to a traditional lender? When a decentralised exchange matches trades algorithmically, does anyone require a market operator licence?

Daimon Legal advises DeFi protocols, fintech ventures, and traditional financial institutions navigating this contested regulatory territory.

How Does Australian Law Apply to DeFi?

Australia has not enacted DeFi-specific legislation. This does not mean DeFi operates in a regulatory vacuum - existing financial services law applies to the extent its elements are satisfied, regardless of the technology used to deliver services.²

ASIC has signalled its approach: technology-neutral regulation focused on economic substance rather than technical implementation. A DeFi lending protocol that functions like credit provision may attract credit licensing obligations under the National Consumer Credit Protection Act 2009 (Cth).³ A yield product that pools investor funds for collective deployment may constitute a managed investment scheme under section 9 of the Corporations Act 2001 (Cth).⁴ An automated market maker that facilitates trading in financial products may require market operator authorisation under Part 7.2 of the Corporations Act.⁵

What You Need to Know: The term "decentralised" provides no regulatory safe harbour. ASIC looks through technical architecture to economic substance. If your protocol performs the function of a regulated financial service - facilitating trades, pooling investments, providing credit - the relevant licensing regime likely applies. The question is not whether the code is decentralised, but whether the service is regulated.

The difficulty lies in applying these frameworks to systems where no single entity controls operations, where governance is distributed across token holders, and where code - not human discretion - executes transactions. Traditional regulatory concepts - "carrying on a business", "providing a financial service" - strain when applied to protocols that operate autonomously once deployed.

Daimon Legal analyses DeFi protocol architecture against regulatory frameworks to identify obligations and structure arrangements that manage regulatory risk.

Fintech Licensing in Australia

For fintech ventures that retain identifiable operators - neobanks, payment platforms, robo-advisors - the regulatory pathway is clearer, if no less demanding. The relevant licensing regime depends on the nature of services provided.

Australian Financial Services Licences (AFSL) under Chapter 7 of the Corporations Act 2001 (Cth) cover dealing in financial products, providing financial advice, and operating financial markets.⁶ Australian Credit Licences (ACL) under the National Consumer Credit Protection Act 2009 (Cth) apply to credit provision and credit assistance.⁷ AUSTRAC registration is mandatory for remittance providers and digital currency exchanges under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).⁸ Payment facility operators may require specific authorisations depending on their model.

What You Need to Know: Licence applications are resource-intensive undertakings. ASIC requires detailed documentation of business models, compliance arrangements, responsible manager competencies, and financial resources. Processing timeframes routinely exceed published targets for complex applications. Budget six to twelve months for AFSL applications and factor this into product launch timelines from the outset.

Daimon Legal's lawyers assist fintech ventures identifying applicable licensing requirements, preparing applications, and establishing compliance frameworks that satisfy regulatory expectations.

Yield Products and Regulatory Risk

Yield-bearing products have attracted particular regulatory attention as traditional market participants view such products as their exclusive domain. ASIC has made clear that cryptocurrency yield products - staking-as-a-service, lending products, liquidity provision - may constitute financial products subject to licensing and disclosure requirements.⁹ Enforcement actions against operators who failed to obtain appropriate authorisations underscore the regulator's willingness to pursue compliance.

The analysis turns on product characteristics as set out in ASIC Regulatory Guide 133.¹⁰ Does your product involve pooling of investor contributions? Is there a common enterprise from which returns derive? Do investors lack day-to-day control over how their assets are deployed? Positive answers to these questions may indicate managed investment scheme characteristics under section 9 of the Corporations Act 2001 (Cth), triggering registration and disclosure obligations under Chapter 5C.¹¹

What You Need to Know: The managed investment scheme analysis is fact-intensive and turns on product design. Structuring choices made early in product development - whether users retain individual control, how yields are generated, the nature of pooling arrangements - determine regulatory classification. Retrofitting a product to avoid scheme characterisation is far more difficult than designing compliance in from the start.

Daimon Legal advises on structuring yield products to achieve commercial objectives while managing regulatory risk, and assists with licensing where required.

Regulatory Sandboxes and Innovation Hubs

ASIC's Enhanced Regulatory Sandbox provides a pathway for eligible fintech businesses to test innovative products with reduced licensing requirements.¹² Participants can operate for up to 24 months under sandbox relief, providing runway to demonstrate viability before committing to full licensing.

Sandbox eligibility requires the team to meet net public benefit and innovation tests, the applicant to meet certain requirements, and appropriate protections to be in place. Not every fintech product qualifies, and sandbox participation is not appropriate for every business model - the testing requirements and service value caps may be a barrier for products requiring longer development cycles, and sandbox graduates face the same licensing requirements as other market entrants.

ASIC's Innovation Hub provides informal guidance to fintech ventures navigating regulatory requirements. Early engagement with the regulator can identify issues before they become problems, though the guidance provided is non-binding.

We assist clients evaluating sandbox eligibility, preparing applications, and engaging with regulatory innovation programs.

Traditional Finance Meets DeFi

Traditional financial institutions are increasingly exploring DeFi applications - using public blockchain infrastructure for settlement, accessing DeFi liquidity pools, and experimenting with tokenised assets. These explorations create novel compliance questions as regulated entities interact with permissionless and censorship-resistant systems.

How should a bank's risk management framework account for smart contract risk? What due diligence is required before a fund manager deploys capital through DeFi protocols? When does a traditional institution's DeFi activity require additional licensing or approval?

What You Need to Know: For AFSL and ACL holders, DeFi engagement creates layered compliance obligations. Your existing licence conditions, risk management frameworks, and responsible manager oversight requirements don't disappear because you're interacting with decentralised protocols. If anything, ASIC expects heightened diligence when regulated entities engage with novel, less-understood systems.

Daimon Legal advises traditional financial institutions on integrating DeFi capabilities within existing regulatory frameworks.

DeFi & Fintech Compliance Checklist

The following checklist provides a practical starting point for DeFi protocols and fintech ventures seeking to assess their regulatory position. It is not exhaustive, but covers the foundational elements most projects should address.

Licensing Assessment

Is your product or service a "financial product" under section 764A of the Corporations Act 2001 (Cth)?
Are you are "carrying on a financial services business" requiring an AFSL under section 911A?
Assess whether any credit activities trigger Australian Credit Licence requirements under the National Consumer Credit Protection Act 2009 (Cth)
Evaluate AUSTRAC registration obligations for remittance or digital currency exchange services

Managed Investment Scheme Analysis

Assess yield products against the managed investment scheme definition in section 9 of the Corporations Act 2001 (Cth)
Review ASIC Regulatory Guide 133 criteria for scheme characterisation
Document the basis for any conclusion that a product is not a managed investment scheme
If scheme characterisation applies, assess registration requirements under Chapter 5C
Prepare product disclosure documentation if required

Protocol Structure and Governance

Document governance arrangements and identify who exercises control over protocol parameters
Assess whether "sufficient decentralisation" arguments have regulatory merit for your specific protocol
Identify the Australian entity or entities that may bear regulatory responsibility
Establish clear lines of accountability for regulatory compliance
Implement governance processes for protocol upgrades with regulatory implications

Consumer Protection

Ensure marketing materials do not contain misleading or deceptive representations
Implement clear risk disclosure statements for your DeFi products
Establish complaints handling and dispute resolution processes
Consider design and distribution obligations for retail product offerings
Document target market determinations where applicable

AML/CTF Compliance

Register with AUSTRAC if providing designated services
Implement customer identification and verification procedures
Establish transaction monitoring and suspicious matter reporting systems
Develop and maintain an AML/CTF program appropriate to your risk profile
Train staff on AML/CTF obligations and red flag identification

Regulatory Engagement

Consider early engagement with ASIC's Innovation Hub for informal guidance
Monitor ASIC regulatory developments and consultation papers relevant to your sector
Participate in industry bodies and contribute to regulatory consultations
Establish relationships with legal advisers experienced in DeFi and fintech regulation such as Daimon Legal
Budget for ongoing compliance investment as regulatory expectations evolve

How Daimon Legal Can Help

Navigating DeFi and fintech regulation requires lawyers who understand both the technology and the regulatory frameworks that apply to it. Daimon Legal provides practical, commercially-focused advice across the full spectrum of DeFi and fintech legal challenges.

Regulatory Classification and Licensing Strategy We analyse your protocol or product against Australian financial services law to determine what licensing obligations might apply. This includes assessment against the managed investment scheme definition, AFSL and ACL requirements, and AUSTRAC registration obligations. We provide advice on the regulatory pathway and help you structure arrangements to achieve commercial objectives within regulatory constraints.

Sandbox Applications and Innovation Hub Engagement We assist with Enhanced Regulatory Sandbox eligibility assessment and application preparation, and facilitate productive engagement with ASIC's Innovation Hub. Early regulatory dialogue, handled appropriately, can identify issues before they become problems.

Protocol Structure and Governance We advise on structuring DeFi protocols to manage regulatory risk, including governance arrangements, entity structures, and the regulatory implications of decentralisation. This work is most effective when undertaken during protocol design rather than after launch.

Yield Product Structuring We advise on structuring yield-bearing products - staking services, lending protocols, liquidity provision mechanisms - to achieve commercial objectives while managing regulatory risk. This includes analysis against managed investment scheme criteria and, where scheme characterisation applies, assistance with registration and disclosure requirements.

Traditional Finance DeFi Integration For banks, fund managers, and other regulated financial institutions exploring DeFi, we advise on integrating blockchain and DeFi capabilities within existing regulatory frameworks. This includes risk management considerations and due diligence requirements.

Regulatory Defence and Enforcement Response When regulatory issues arise - whether through ASIC inquiry, enforcement action, or compliance breach - we provide rapid response support including regulatory liaison, remediation planning, and defence strategy.

For a confidential discussion about your DeFi or fintech legal requirements, contact Daimon Legal.

The information on this page is general in nature and does not constitute legal advice. Please review our Legal Disclaimer for important information about the limitations of this content and the terms governing your use of this website.

Footnotes

ASIC, Information Sheet 225: Crypto-assets (updated October 2025). ↩
Corporations Act 2001 (Cth), s 911A (requirement for AFSL to carry on financial services business). ↩
National Consumer Credit Protection Act 2009 (Cth), s 29 (Prohibition on engaging in credit activities without a licence). ↩
Corporations Act 2001 (Cth), s 9 (definition of "managed investment scheme"). ↩
Corporations Act 2001 (Cth), Part 7.2 (licensing of financial markets). ↩
Corporations Act 2001 (Cth), Chapter 7 (Financial services and markets). ↩
National Consumer Credit Protection Act 2009 (Cth), Chapter 2 (Licensing of persons who engage in credit activities). ↩
Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth), s 6 (registration requirements for reporting entities). ↩
ASIC, Media Release 22-054MR: ASIC acts against Finder Wallet's risky crypto-linked product (15 December 2022). ↩
ASIC, Regulatory Guide 133: Managed investment schemes and offer of interests, particularly Part F "Holding crypto-assets". ↩
Corporations Act 2001 (Cth), Chapter 5C (Managed investment schemes). ↩
ASIC, Enhanced Regulatory Sandbox (information on sandbox eligibility and conditions). ↩

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