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The Tightrope Walk on Decentralised Finance and Cryptocurrencies

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By Charith Gamage

Cryptocurrencies together with Decentralised Finance (DeFi), the finance ecosystem that extends cryptocurrencies into banking territory, can positively impact developing countries. But it is not quite so straightforward and is still a double-edged sword for developing markets like Sri Lanka. So, how should the country position itself to face the key challenges ahead?

Since its inception following the Global Financial Crisis in 2007-2008, as an alternate digital asset, cryptocurrency has always been a two-edged sword, abundantly subjected to scepticism.

Some of this scepticism has a rationale behind it. Cryptocurrencies do not have an underlying cash flow, such as that for stocks of firms, nor do they have an inherent material value, such as for assets like gold. Being located inches away from the regulatory radar, they can also be equally prone to criminal activities. If that is not enough, bitcoin mining, the process by which new transactions are validated on the network, consumes a lot of energy. So, despite being a crypto enthusiast, even billionaire Elon Musk once stated, it has an environmental impact, too [1].

In the face of these challenges, the recent cryptocurrency price surge with the Covid-19 Pandemic has taken many by surprise. What caused the market to embrace them, spearheaded by its most popular type, Bitcoin’s spiralling 600%+ rally? According to crypto proponents, the value stems primarily from its design that can self-sustain as an alternative decentralised system to the traditional systems. In other words, the market is ready to pay the price for its ability to function as an asset over which no centralised person or authority has control. So, the claim, as the pandemic engulfed global economies, is that investors may have lost faith in central bank policies and their pursuit for an alternate asset that has resulted in this price movement.

DeFi, on the other hand, extends this concept and allows cryptocurrencies to function in a decentralised banking environment that may even have immense benefits to developing countries. As the debate continues, it is worth finding out more on the recent emergence of DeFi; how could it unlock the potential of Emerging/Frontier markets, and at what cost? What are the key hurdles to pull the meat from the bone moving forward?

What is DeFi, and how does it work?

The idea of DeFi is more broad-based than one of its workhorses, cryptocurrencies, which most are familiar with as a medium of exchange or store of value, and it builds on a fundamental structure known as the blockchain. The system allows it to operate without the need for intermediaries, such as traditional financial institutions like conventional commercial banks, brokerages, and of course, authorities such as central banks. However, it has its own ecosystem that recreates the traditional financial system. So, it is logical to say that DeFi refers to the decentralised banking and financial system that the technology is based on and includes components such as lending and borrowing services for cryptocurrencies (and many more). To put it simply, it is an alternative banking system in the digital space with digital currencies that has no middlemen (such as commercial or central banks who have controlling power) and with rules that are already written into it. Today, it mostly runs on the Ethereum blockchain, the second most popular currency after Bitcoin. DeFi has rapidly evolved in recent years, and, for example, Aave, Marker, and Curve Finance are the biggest lending systems in this space, with the sum of all assets deposited in DeFi closer to 45 billion USD [2].

Without banks or lawyers, as in the traditional financial system, DeFi is built with smart contracts, a self-executing contract built on the blockchain when predetermined conditions are met, and allows economic agents such as the general public and firms to engage in banking activities.

Because this architecture differs fundamentally from bringing the same traditional banking into the digital space, as happens in online banking, many can see that it will benefit developing countries when traditional financial systems fall apart. Nevertheless, it comes at a cost, where the country needs to overcome challenges to harness its potential.

Why exploring DeFi is pronounced in emerging and developing markets

It is not a secret that the lack of financial intermediation in the developing world under the conventional system hinders their economic potential. Although Sri Lanka’s unbanked population (26%) is somewhat lower than the global average (31%), it is unclear how certain groups’ failure to conform to formal regulations and paperwork around these institutions distances them from the entire expected services they desire (Data Source Findex 2017). On the other hand, economic agents have fewer investment opportunities to invest their wealth for a better return in economies with underdeveloped markets. DeFi seems to have better answers to those questions.

For example, a UNICEF project shows that DeFi can uplift those lives [3]. The project, Satchel, a Blockchain-based DeFi service created by a research group from Berkeley, helps fulfil the financial needs of those underprivileged communities by allowing them to pool their funds together and earn interest. The concept could be extended to pool their money and lend it out to small businesses; in this way, the community can use the interest earned for their purposes while the local small businesses fulfil their funding needs. So, DeFi can thus give an alternative, if not more than that, to regular banking, for small businesses and communities in rural regions, even if they are unable to satisfy the criteria of traditional banking.

Apart from improving financial inclusion among rural communities, DeFi clearly has other benefits with proper education, such as an efficient cross-border fund transfer for businesses and remittances. Sending remittance through cryptocurrency can gain more attention in the future as a low-cost solution for ordinary remittance transfers and currency conversions that can eat up as much as 7% of those flows. Also, DeFi can be easily integrated with the Universal Basic Income (UBI) programmes discussed in a previous article that empower low-income communities to lead the economy[4].

Most importantly, decentralisation allows the market to gain alternative power over the ability of traditional institutions to control the market by devaluing or increasing the money supply or by imposing unhealthy regulations on certain sectors. This balance could be healthy for the economy as it brings competition to the market over the conventional institutions.

What are the key challenges to be solved?

Although DeFi has the potential to boost economic activities, proper integration with society needs much more effort, including the development of digital infrastructure and literacy. A recent Daily FT editorial highlighted this challenge, citing that digitisation efforts will not be fruitful unless the underlying foundation is strengthened [5].

In addition, the emergence of an alternate banking system via DeFi can cause unprecedented challenges to economies. Of course, it can create “systemic risks” and propagate instabilities in conventional financial systems, depending on how interlaced they are. Having dominated the conventional monetary system, they can also lessen the effectiveness of the monetary tools and power of the institutions such as central banks. Although these discussions are still rudimentary, given that economics related to DeFi have not been tested at scale, they will be more hot topics as the technology grows.

On the other hand, DeFi regulation is one of the most daunting tasks, as exemplified by the experiences of many countries that are currently trying to combat it. At the moment, bringing capital gain income from crypto assets under the tax net, regulating crypto exchanges to avoid the misuse of technology, and curbing phoney cryptocurrency schemes, are the most popular topics in this space. Meanwhile, a Forbes article, citing an expert report by Chainalysis, shows that crypto in criminal activities is not as large as commonly believed [6]. While this fraction was deficient, 2.1% in 2019 and 0.34% in 2020 out of the total transaction volume, the article shows that the traditional non-crypto methods may still facilitate illicit activities much more frequently than these methods. Although this is a positive indication for authorities to welcome the technology, there is no guarantee that they would be exacerbated in the developing nations with relatively weaker institutions once popularised. With that being said, the overregulation approach may not be the best answer, but the easiest and costliest approach that wipes out complete benefits in the dash for DeFi.

The Way Forward

Despite the debate around cryptocurrency, the decentralised currency together with DeFi, the alternate decentralised financial system, undoubtedly can cause a significant impact on the developing world to increase the productivity of those economies. In particular, it is more pronounced to allow financial intermediation for those who found refuge under the conventional system for various reasons. It has gone mainstream now on Wall Street while top-level universities and researchers are involved in the development, despite all chaos surrounding cryptocurrency. More importantly, the underlying technology, blockchain, is considered one of the most promising emerging technologies at the moment.

From the Sri Lankan perspective, now it seems the government insists on looking deeply at the crypto and blockchain space[7]. This initiative is a positive sign and, if successful, will be a good foundation for exploring the ecosystem, DeFi, more broadly and carefully for better policies.

Not to mention, diving down the rabbit hole of DeFi requires a cohesive approach strengthening the digital infrastructure, facilitating a healthy Conventional-DeFi integrated ecosystem, hunting for policy instruments to combat the knock-on effects, and establishing a healthy and supportive regulatory framework. So, it will help the country shape the landscape to stay on par with the peer trading partners trying to reap the full potential of the technology under a controlled environment, and, of course, without blindly embracing it nor throwing out the baby with the bathwater.

The writer, a former Senior Assistant Director of the Central Bank of Sri Lanka, is a PhD candidate attached to the Monash University, Australia. He pursued his undergraduate studies in Engineering from the University of Moratuwa and graduate studies in Finance/Economics from the University of California, Berkeley, USA and the University of New Mexico, USA. He would like to thank Abigayle Goldstein (Lobo Friends Program at UNM) for commenting on the article and helpful suggestions. The views and opinions expressed in this article are those of the writer, and he could be reached via charith.gamage@monash.edu



Features

Cyclones, greed and philosophy for a new world order

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Floods caused by Cyclone Ditwah in Sri Lanka

Further to my earlier letter titled, “Psychology of Greed and Philosophy for a New World Order” (The Island 26.11.2025) it may not be far-fetched to say that the cause of the devastating cyclones that hit Sri Lanka and Indonesia last week could be traced back to human greed. Cyclones of this magnitude are said to be unusual in the equatorial region but, according to experts, the raised sea surface temperatures created the conditions for their occurrence. This is directly due to global warming which is caused by excessive emission of Greenhouse gases due to burning of fossil fuels and other activities. These activities cannot be brought under control as the rich, greedy Western powers do not want to abide by the terms and conditions agreed upon at the Paris Agreement of 2015, as was seen at the COP30 meeting in Brazil recently. Is there hope for third world countries? This is why the Global South must develop a New World Order. For this purpose, the proposed contentment/sufficiency philosophy based on morals like dhana, seela, bhavana, may provide the necessary foundation.

Further, such a philosophy need not be parochial and isolationist. It may not be  necessary to adopt systems that existed in the past that suited the times but develop a system that would be practical and also pragmatic in the context of the modern world.

It must be reiterated that without controlling the force of collective greed the present destructive socioeconomic system cannot be changed. Hence the need for a philosophy that incorporates the means of controlling greed. Dhana, seela, bhavana may suit Sri Lanka and most of the East which, as mentioned in my earlier letter, share a similar philosophical heritage. The rest of the world also may have to adopt a contentment / sufficiency philosophy with  strong and effective tenets that suit their culture, to bring under control the evil of greed. If not, there is no hope for the existence of the world. Global warming will destroy it with cyclones, forest fires, droughts, floods, crop failure and famine.

Leading economists had commented on the damaging effect of greed on the economy while philosophers, ancient as well as modern, had spoken about its degenerating influence on the inborn human morals. Ancient philosophers like Plato, Aristotle, and Epicurus all spoke about greed, viewing it as a destructive force that hindered a good life. They believed greed was rooted in personal immorality and prevented individuals from achieving true happiness by focusing on endless material accumulation rather than the limited wealth needed for natural needs.

Jeffry Sachs argues that greed is a destructive force that undermines social and environmental well-being, citing it as a major driver of climate change and economic inequality, referencing the ideas of Adam Smith, John Maynard Keynes, etc. Joseph Stiglitz, a Nobel Laureate economist, has criticised neoliberal ideology in similar terms.

In my earlier letter, I have discussed how contentment / sufficiency philosophy could effectively transform the socioeconomic system to one that prioritises collective well-being and sufficiency over rampant consumerism and greed, potentially leading to more sustainable economic models.

Obviously, these changes cannot be brought about without a change of attitude, morals and commitment of the rulers and the government. This cannot be achieved without a mass movement; people must realise the need for change. Such a movement would need  leadership. In this regard a critical responsibility lies with the educated middle class. It is they who must give leadership to the movement that would have the goal of getting rid of the evil of excessive greed. It is they who must educate the entire nation about the need for these changes.

The middle class would be the vanguard of change. It is the middle class that has the capacity to bring about change. It is the middle class that perform as a vibrant component of the society for political stability. It is the group which supplies political philosophy, ideology, movements, guidance and leaders for the rest of the society. The poor, who are the majority, need the political wisdom and leadership of the middle class.

Further, the middle class is the font of culture, creativity, literature, art and music. Thinkers, writers, artistes, musicians are fostered by the middle class. Cultural activity of the middle class could pervade down to the poor groups and have an effect on their cultural development as well. Similarly, education of a country depends on how educated the middle class is. It is the responsibility of the middle class to provide education to the poor people.

Most importantly, the morals of a society are imbued in the middle class and it is they who foster them. As morals are crucial in the battle against  greed, the middle class assume greater credentials to spearhead the movement against greed and bring in sustainable development and growth. Contentment sufficiency philosophy, based on morals, would form the strong foundation necessary for achieving the goal of a new world order. Thus, it is seen that the middle class is eminently suitable to be the vehicle that could adopt and disseminate a contentment/ sufficiency philosophy and lead the movement against the evil neo-liberal system that is destroying the world.

The Global South, which comprises the majority of the world’s poor, may have to realise, before it is too late, that it is they who are the most vulnerable to climate change though they may not be the greatest offenders who cause it. Yet, if they are to survive, they must get together and help each other to achieve self-sufficiency in the essential needs, like food, energy and medicine. Trade must not be via exploitative and weaponised currency but by means of a barter system, based on purchase power parity (PPP). The union of these countries could be an expansion of organisations,like BRICS, ASEAN, SCO, AU, etc., which already have the trade and financial arrangements though in a rudimentary state but with great potential, if only they could sort out their bilateral issues and work towards a Global South which is neither rich nor poor but sufficient, contented and safe, a lesson to the Global North. China, India and South Africa must play the lead role in this venture. They would need the support of a strong philosophy that has the capacity to fight the evil of greed, for they cannot achieve these goals if fettered by greed. The proposed contentment / sufficient philosophy would form a strong philosophical foundation for the Global South, to unite, fight greed and develop a new world order which, above all, will make it safe for life.

by Prof. N. A. de S. Amaratunga 
PHD, DSc, DLITT

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SINHARAJA: The Living Cathedral of Sri Lanka’s Rainforest Heritage

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Damp and thick undergrowth

When Senior biodiversity scientist Vimukthi Weeratunga speaks of Sinharaja, his voice carries the weight of four decades spent beneath its dripping emerald canopy. To him, Sri Lanka’s last great rainforest is not merely a protected area—it is “a cathedral of life,” a sanctuary where evolution whispers through every leaf, stream and shadow.

 “Sinharaja is the largest and most precious tropical rainforest we have,” Weeratunga said.

“Sixty to seventy percent of the plants and animals found here exist nowhere else on Earth. This forest is the heart of endemic biodiversity in Sri Lanka.”

A Magnet for the World’s Naturalists

Sinharaja’s allure lies not in charismatic megafauna but in the world of the small and extraordinary—tiny, jewel-toned frogs; iridescent butterflies; shy serpents; and canopy birds whose songs drift like threads of silver through the mist.

“You must walk slowly in Sinharaja,” Weeratunga smiled.

“Its beauty reveals itself only to those who are patient and observant.”

For global travellers fascinated by natural history, Sinharaja remains a top draw. Nearly 90% of nature-focused visitors to Sri Lanka place Sinharaja at the top of their itinerary, generating a deep economic pulse for surrounding communities.

A Forest Etched in History

Centuries before conservationists championed its cause, Sinharaja captured the imagination of explorers and scholars. British and Dutch botanists, venturing into the island’s interior from the 17th century onward, mapped streams, documented rare orchids, and penned some of the earliest scientific records of Sri Lanka’s natural heritage.

Smallest cat

These chronicles now form the backbone of our understanding of the island’s unique ecology.

The Great Forest War: Saving Sinharaja

But Sinharaja nearly vanished.

In the 1970s, the government—guided by a timber-driven development mindset—greenlit a Canadian-assisted logging project. Forests around Sinharaja fell first; then, the chainsaws approached the ancient core.

 “There was very little scientific data to counter the felling,” Weeratunga recalled.

“But people knew instinctively this was a national treasure.”

The public responded with one of the greatest environmental uprisings in Sri Lankan history. Conservation icons Thilo Hoffmann and Neluwe Gunananda Thera led a national movement. After seven tense years, the new government of 1977 halted the project.

What followed was a scientific renaissance. Leading researchers—including Prof. Savithri Gunathilake and Prof. Nimal Gunathilaka, Prof. Sarath Kottagama, and others—descended into the depths of Sinharaja, documenting every possible facet of its biodiversity.

Thilak

 “Those studies paved the way for Sinharaja to become Sri Lanka’s very first natural World Heritage Site,” Weeratunga noted proudly.

A Book Woven From 30 Years of Field Wisdom

For Weeratunga, Sinharaja is more than academic terrain—it is home. Since joining the Forest Department in 1985 as a young researcher, he has trekked, photographed, documented and celebrated its secrets.

Now, decades later, he joins Dr. Thilak Jayaratne, the late Dr. Janaka Gallangoda, and Nadika Hapuarachchi in producing, what he calls, the most comprehensive book ever written on Sinharaja.

 “This will be the first major publication on Sinharaja since the early 1980s,” he said.

“It covers ecology, history, flora, fauna—and includes rare photographs taken over nearly 30 years.”

Some images were captured after weeks of waiting. Others after years—like the mysterious mass-flowering episodes where clusters of forest giants bloom in synchrony, or the delicate jewels of the understory: tiny jumping spiders, elusive amphibians, and canopy dwellers glimpsed only once in a lifetime.

The book even includes underwater photography from Sinharaja’s crystal-clear streams—worlds unseen by most visitors.

A Tribute to a Departed Friend

Halfway through the project, tragedy struck: co-author Dr. Janaka Gallangoda passed away.

 “We stopped the project for a while,” Weeratunga said quietly.

“But Dr. Thilak Jayaratne reminded us that Janaka lived for this forest. So we completed the book in his memory. One of our authors now watches over Sinharaja from above.”

Jumping spide

An Invitation to the Public

A special exhibition, showcasing highlights from the book, will be held on 13–14 December, 2025, in Colombo.

“We cannot show Sinharaja in one gallery,” he laughed.

“But we can show a single drop of its beauty—enough to spark curiosity.”

A Forest That Must Endure

What makes the book special, he emphasises, is its accessibility.

“We wrote it in simple, clear language—no heavy jargon—so that everyone can understand why Sinharaja is irreplaceable,” Weeratunga said.

“If people know its value, they will protect it.”

To him, Sinharaja is more than a rainforest.

It is Sri Lanka’s living heritage.

A sanctuary of evolution.

A sacred, breathing cathedral that must endure for generations to come.

By Ifham Nizam

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How Knuckles was sold out

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Knuckles range

Leaked RTI Files Reveal Conflicting Approvals, Missing Assessments, and Silent Officials

“This Was Not Mismanagement — It Was a Structured Failure”— CEJ’s Dilena Pathragoda

An investigation, backed by newly released Right to Information (RTI) files, exposes a troubling sequence of events in which multiple state agencies appear to have enabled — or quietly tolerated — unauthorised road construction inside the Knuckles Conservation Forest, a UNESCO World Heritage site.

At the centre of the unfolding scandal is a trail of contradictory letters, unexplained delays, unsigned inspection reports, and sudden reversals by key government offices.

“What these documents show is not confusion or oversight. It is a structured failure,” said Dilena Pathragoda, Executive Director of the Centre for Environmental Justice (CEJ), who has been analysing the leaked records.

“Officials knew the legal requirements. They ignored them. They knew the ecological risks. They dismissed them. The evidence points to a deliberate weakening of safeguards meant to protect one of Sri Lanka’s most fragile ecosystems.”

A Paper Trail of Contradictions

RTI disclosures obtained by activists reveal:

Approvals issued before mandatory field inspections were carried out

Three departments claiming they “did not authorise” the same section of the road

A suspiciously backdated letter clearing a segment already under construction

Internal memos flagging “missing evaluation data” that were never addressed

“No-objection” notes do not hold any legal weight for work inside protected areas, experts say.

One senior officer’s signature appears on two letters with opposing conclusions, sent just three weeks apart — a discrepancy that has raised serious questions within the conservation community.

“This is the kind of documentation that usually surfaces only after damage is done,” Pathragoda said. “It shows a chain of administrative behaviour designed to delay scrutiny until the bulldozers moved in.”

The Silence of the Agencies

Perhaps, more alarming is the behaviour of the regulatory bodies.

Multiple departments — including those legally mandated to halt unauthorised work — acknowledged concerns in internal exchanges but issued no public warnings, took no enforcement action, and allowed machinery to continue operating.

“That silence is the real red flag,” Pathragoda noted.

“Silence is rarely accidental in cases like this. Silence protects someone.”

On the Ground: Damage Already Visible

Independent field teams report:

Fresh erosion scars on steep slopes

Sediment-laden water in downstream streams

Disturbed buffer zones

Workers claiming that they were instructed to “complete the section quickly”

Satellite images from the past two months show accelerated clearing around the contested route.

Environmental experts warn that once the hydrology of the Knuckles slopes is altered, the consequences could be irreversible.

CEJ: “Name Every Official Involved”

CEJ is preparing a formal complaint demanding a multi-agency investigation.

Pathragoda insists that responsibility must be traced along the entire chain — from field officers to approving authorities.

“Every signature, every omission, every backdated approval must be examined,” she said.

“If laws were violated, then prosecutions must follow. Not warnings. Not transfers. Prosecutions.”

A Scandal Still Unfolding

More RTI documents are expected to come out next week, including internal audits and communication logs that could deepen the crisis for several agencies.

As the paper trail widens, one thing is increasingly clear: what happened in Knuckles is not an isolated act — it is an institutional failure, executed quietly, and revealed only because citizens insisted on answers.

by Ifham Nizam

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