EU Shifts Regulatory Focus to DeFi, Report Highlights Likely Policy Direction – 24/7 Wall St.

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EU could intro­duce new reg­u­la­tions to address major threats DeFi presents as stan­dard poli­cies are “inad­e­quate to the treat­ment of DeFi ser­vices,” said Euro­pean Commission’s Mat­tias Levin today. Levin’s remarks came dur­ing a webi­nar focused on Euro­pean Commission’s report pub­lished ear­li­er this week on DeFi reg­u­la­tion and supervision.

Current Financial Policies “Inadequate” to Regulate DeFi, says European Commission Executive

Cur­rent finan­cial reg­u­la­tions are not estab­lished enough to reg­u­late the rapid­ly-grow­ing decen­tral­ized finance (DeFi) space, accord­ing to Euro­pean Commission’s report “Decen­tral­ized Finance: infor­ma­tion fric­tions and pub­lic poli­cies,” pub­lished ear­li­er this week.

Dur­ing today’s webi­nar out­lin­ing the report, Mat­tias Levin, Deputy Head of Unit of Euro­pean Commission’s dig­i­tal finance divi­sion, said the report rep­re­sents a “part of our ambi­tion to under­stand DeFi fur­ther, to inform our think­ing about how to address any con­cern poten­tial pub­lic pol­i­cy con­se­quences.” The report notes that cur­rent finan­cial poli­cies are “inad­e­quate to the treat­ment of DeFi ser­vices” and puts for­ward sev­er­al pol­i­cy pro­pos­als aimed at improv­ing DeFi regulation.

One of the pro­pos­als out­lined in the report was to estab­lish an indi­vid­ual pol­i­cy focused on reg­u­lat­ing enti­ties that are “legal­ly sub­ject­ed to the author­i­ty of stan­dard pub­lic insti­tu­tions.” Under the cur­rent reg­u­la­to­ry frame­work, law­mak­ers do not the­o­ret­i­cal­ly have the pow­er to reg­u­late enti­ties out­side the DeFi space, the report adds.

In addi­tion, the report also pro­pos­es a vol­un­tary com­pli­ance frame­work that would reg­u­late both pro­to­cols and legal bod­ies. In this case, pro­to­cols and DeFi users would be able to choose to abide by some pol­i­cy rules in order to win “dif­fer­ent forms of pub­lic sup­port and guar­an­tee such as a stamp of pub­lic approval.”

Among oth­er things, the Euro­pean Com­mis­sion also sug­gests estab­lish­ing a pub­lic obser­va­to­ry based on pub­lic opin­ions and on-chain data. The obser­va­to­ry would be respon­si­ble for open­ing a pub­lic inves­ti­ga­tion and would issue pub­lic warn­ings regard­ing high-risk DeFi pro­to­cols and activities.

EU Ramps Up Efforts to Regulate the Crypto “Wild West”

Ear­li­er this month, the Euro­pean Par­lia­ment vot­ed in favor of the Mar­kets in Cryp­to Assets Reg­u­la­tion (MiCA) bill, intro­duced in June 2022. MiCA rep­re­sents com­pre­hen­sive leg­is­la­tion aimed at reg­u­lat­ing the “cryp­to wild west,” par­tic­u­lar­ly sta­ble­coins and cryp­to exchanges.

The par­lia­ment vot­ed 28–1 in favor of the bill, and the EU Coun­cil is expect­ed to approve the leg­is­la­tion by the end of Octo­ber, before it goes into effect in 2024. The announce­ment pushed Bit­coin below the $19,000 thresh­old, with the world’s biggest cryp­tocur­ren­cy los­ing over 50% in the past six months.

The Euro­pean Union has been dou­bling down on reg­u­lat­ing the cryp­to space to pro­tect con­sumers fol­low­ing a series of hacks and cryp­to firms’ col­laps­es in 2022. Recent research by Chainal­y­sis showed that DeFi has been par­tic­u­lar­ly exposed to exploits, with hack­ers steal­ing $1.3 bil­lion from cryp­to plat­forms in the first three months of the year.

This arti­cle orig­i­nal­ly appeared on The Tokenist

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