Analysts from the European Commission confirmed an sudden understanding of how decentralized finance (DeFi) really features, having outlined it as one thing completely different from the normal monetary system and acknowledging that it could require rethinking the strategy to regulation.
On Monday, May 2, crypto enterprise advisor at Presight Capital and a long-term professional on European regulation Patrick Hansen shared some vital particulars from the EU Commission’s “European Financial Stability and Integration Review 2022.” T report, dated April 7, accommodates a 12-page chapter on DeFi, through which the authors show a wise strategy to the subject.
1/ In case you missed it, the EU fee wrote a chapter on DeFi in its “Financial stability & integration review 2022”
It exhibits that the Commission employees is properly conscious of how DeFi works, incl. single protocols.
A couple of chosen quotes wrt coverage https://t.co/K2GOpRBTWk pic.twitter.com/SrwYb4lXGV
— Patrick Hansen (@paddi_hansen) May 2, 2022
The report defines DeFi as “a newly emerging form of autonomous financial intermediation in a decentralized digital environment powered by […] “smart contracts” on public blockchains.” It acknowledges the smart contracts to be “substitutes for regulated intermediaries” and suggests regulatory efforts to concentrate on communication with the particular DeFi groups that create these contracts.
Underscoring the distinction between tDeFi and the normal finance system, the report acknowledges the important thing benefits of the previous:
“Compared to the traditional financial system, DeFi claims to increase the security, efficiency, transparency, accessibility, openness and interoperability of financial services.”
Special consideration is drawn to the general public blockchain’s potential for researchers and supervisors who can have free entry to all the time sequence of historic and real-time trading knowledge, which, in flip, might facilitate a greater understanding of the dangers that “often remain obscure in the traditional financial system.”
Further studying: GameFi is showing signs of a mature landscape: Report
Among different issues, the report highlights DeFi’s potential decrease monetary audit prices and substantial alternatives for monetary integration throughout borders. It additionally advocates a wise strategy to regulation, proposing to shift the steadiness from an entity-based to an activity-based technique:
“However, it is obvious that simply copying traditional regulatory approaches in a decentralised environment may not be an option, since they have traditionally focused on intermediaries that play a central role in the financial system. Adapting the regulatory framework to a decentralised environment may be challenging and would require a rethink of how we approach regulation.”
As Hansen concludes, regardless of the “worrisome takes on the regulation of […] project teams and code,” he’s pleasantly stunned by the extent of information that the DeFi chapter manifests. In that sense, the doc comes as a aid after a sequence of the controversial episodes within the EU’s regulation routine — a last-moment reversion of a planned PoW-mining ban within the MiCa draft and the attack on non-custodial wallets within the amendments to the Transfer of Funds Regulation.
