Eureka! The European Commission seems to have understood DeFi

Cultivate the difference! – European Commission analysts have shown an unexpected understanding of how the EU actually works decentralized finance (Challenge). They defined it as something different from the traditional financial system. They also recognized that it was necessary rethink the approach to regulation. Their report highlights the potential of DeFi to reduce financial audit costs. It also discusses substantial opportunities for cross-border financial integration.

A real understanding of DeFi?

On Monday, May 2, 2022, Patrick Hansen, crypto-venture advisor at Presight Capital and long-time European regulation expert, shared some important details of the “European Review of Financial Stability and Integration 2022” of the European Commission. The T report, dated April 7, contains a 12-page chapter on DeFi. And the best thing about all of this is that its authors demonstrate a sensible approach to the subject… Finally!

The European Commission shows an unexpected understanding of decentralized finance.

The report defines DeFi as “a new emerging form of autonomous financial intermediation in a decentralized digital environment powered by (…) ‘smart contracts’ on public blockchains”. It recognizes that smart contracts are “substitutes for regulated intermediaries”. The analysts who wrote it suggest regulatory efforts. According to them, it would be important to focus on communication with DeFi teams who create these contracts.

Highlighting the difference between decentralized finance and the traditional financial system, the report acknowledges the main advantages of DeFi.

“Compared to the traditional financial system, DeFi claims to increase the security, efficiency, transparency, accessibility, openness and interoperability of financial services. »

Extract from the report of the European Commission on decentralized finance

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Or new blockchain and crypto-related opportunities?

The potential of blockchain for researchers and supervisors draws particular attention. Indeed, it offers free access to a chronological set of trading data and real-time history. This could facilitate a better understanding of the risks that “often remain obscure” in the traditional financial system.

The report highlights the potential reduction in financial audit costs of DeFi. It also highlights the substantial opportunities for cross-border financial integration. He also recommends a sensible approach to regulation. Indeed, it proposes to replace the current strategy, based on the entity, towards a strategy based on the activity.

The European Commission has looked into the subject of decentralized finance.  Perhaps we can expect better regulation of DeFi than what has been on offer lately?
The European Commission seems to have looked into DeFi, it was about time!

“However, it is clear that simply copying traditional regulatory approaches in a decentralized environment may not be an option. They have traditionally focused on intermediaries who play a central role in the financial system. Adapting the regulatory framework to a decentralized environment can be difficult and would require rethinking our approach to regulation. »

Extract from the report of the European Commission on decentralized finance

Despite the “disturbing views on the regulation of […] project and code teams », Patrick Hansen is pleasantly surprised by the level of knowledge that the DeFi chapter shows. Indeed, the document comes as a relief after a series of controversial episodes in EU crypto and DeFi regulation. We will remember in particular the reversal of the situation of the MiCa law. Reversed at the last moment, it planned to ban the mining Proof-Of-Work blockchains like Bitcoin. As well, the attack on anonymous wallets in the amendments to the regulations on the transfer of funds caused an outcry.

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