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DeFi Risk Advisory

How can we prepare for upcoming crypto regulations?

Regulations like MiCA in the EU set high standards for governance and transparency. Even if not yet fully applicable in Georgia, adopting these standards proactively (e.g., publishing whitepapers with risk disclosures, auditing smart contracts) makes your project future-proof and attractive to institutional investors. We conduct gap analyses against global standards.

What are the legal risks of using Oracles?

Reliance on a single price oracle creates a central point of failure. If the oracle is manipulated (flash loan attack), your protocol could be drained. Legally, this could be seen as a design flaw leading to liability. We advise on decentralizing oracle sources and implementing circuit breakers to mitigate this risk.

Does a decentralized governance vote absolve founders of liability?

Not necessarily. If founders control the majority of tokens or influence the vote significantly, regulators may look through the "decentralization theater" and hold them liable as central operators. Genuine decentralization requires broad token distribution and truly independent community participation, which we help verify.

How to manage risks when scaling a DeFi protocol?

Scaling introduces new attack vectors. We advise on a phased rollout strategy: establishing bug bounty programs, obtaining multiple independent audits, and setting insurance funds. Legally, we update Terms of Service and risk disclosures to reflect the increasing complexity and new features of the protocol.

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The DeFi (Decentralized Finance) ecosystem is characterized by high risks that go beyond just code security. Projects face regulatory uncertainty, financial stability issues, and operational threats. DeFi Risk Advisory is a strategic service that helps founders and investors identify potential dangers before they become real problems. In Georgia, where crypto regulations are still evolving, proactive risk management is especially important to ensure the project is sustainable both legally and financially.

What Does the DeFi Risk Advisory Service Cover?

This is a multifaceted consultancy covering:

  • Regulatory Risks: Assessing how the project might be subject to future regulations (e.g., like MiCA in Europe or similar initiatives in Georgia) and how to prepare.
  • Counterparty Risks: Analyzing risks of integration with other DeFi protocols (LEGO bricks) (e.g., what happens if the Oracle or Bridge you use gets hacked).
  • Operational Risks: Policies for managing Admin Keys and the security of Multisig governance.
  • Legal Liability Risks: Assessing the probability of legal prosecution against founders in case of a "Rug Pull" or hack.
  • Consumer Protection Risks: Transparency of the User Interface (UI) and adequacy of risk warnings.
  • Sanctions Risks: Monitoring and preventing interaction with sanctioned addresses (OFAC) by the protocol.

Common Real-World Scenarios

Risk assessment is critical in the following scenarios:

  • When a DeFi protocol plans to scale and attract large institutional investors who require a detailed risk report.
  • When a project introduces a new financial product (e.g., synthetic assets) and wants to assess its legality.
  • When governance is being transferred to the community, and there is a need to insure against accusations of centralization.
  • When a project operates in high-risk jurisdictions or serves users from sanctioned countries.
  • Crisis Management (Incident Response) — preparing a preliminary plan for a hacking incident.

Georgian Legislation and Regulations

Risk assessment takes into account the Civil Code of Georgia (liability for damages), the Law on Facilitating the Prevention of Money Laundering (sanctioned persons risks), and National Bank of Georgia regulations. Special attention is paid to the concept of "gross negligence" in civil law — if a developer knew about a security flaw and did not fix it, this increases the risk of liability. Also important are international sanctions enforcement rules, which Georgia adheres to, obliging DeFi projects to have mechanisms to block "blacklist" addresses (even at the Frontend level).

Service Process

Legal.ge risk management experts:

  1. Identification: Conduct interviews and study the project architecture.
  2. Analysis: Assess the probability and impact of each risk (Risk Matrix).
  3. Mitigation: Offer specific steps to reduce risks (e.g., changing legal structure, additional audits, insurance).
  4. Monitoring: Periodically update the risk map in accordance with legislative changes.

Why Legal.ge?

Code audit alone is not enough to save a project. Legal.ge gives you access to lawyers who see the "big picture" — how technology interacts with the legal and financial world. Our specialists will help you avoid mistakes that could destroy the project's reputation and lead to financial collapse.

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