Will the EU Commission reconsider its DeFi regulation stance?

With the growing demand from crypto firms for a favourable Web 3.0 development and cryptocurrency adoption environment, the EU Commission is all set to consider its call on decentralised finance (DeFi) regulations.

A review study conducted by the European Commission called the ‘European Financial Stability and Integration Review 2022’ indicated that the analysts within the organisation seem to have a sound grasp of DeFi operations and the effectiveness it could bring into the system. 

EU outlines the benefits of DeFi

According to the 67-page report dated 7 April, the EU Commission believes that DeFi could bring increased security, transparency, and efficiency to the financial system compared to the traditional financial system. The EU commission feels that DeFi could bring better cross-border financial integration and contribute usefully to the virtual economy. 

Also read: Tectonic Crypto (TONIC): Will the rally be able to reverse its losses?

Besides, the EU commission also acknowledges how smart contracts could substitute regulated intermediaries. So, the regulatory efforts need to be around creating such smart contracts and must focus on increased communication.

Besides, the report also highlights that DeFi could potentially reduce the financial audit costs with transparency as auditing smart contracts would require less effort than the real-life audit of intermediary firms. 

Sensible regulatory approach amidst increasing DeFi hacks

Experts believe that the EU needs to take a balanced approach when it comes to regulating DeFis. While the EU still feels that DeFi is prone to scams, fraud, and other quasi-anonymous transactions. In fact, according to leading blockchain security firm Certik, DeFi hacks in the first four months of the year have resulted in a loss of over US$1.6 billion. 

Also read: Why are DeFi attacks increasing by the day?

However, experts such as Patrick Hansen, crypto venture advisor at Presight Capital, in a tweet suggested that adapting the regulatory framework to a decentralised environment could pose a challenge and, therefore, would need to reconsider the approach to regulation. 

Hansen added that the regulator body’s ability to detect and monitor compliance by reading public blockchain data could reduce the need for market participants to collect, verify and deliver data to supervisory authorities actively.

Conclusion

All in all, from the EU Commission report, it is clear, albeit with some reservations, that the authority does have a decent grip on DeFi. The silver lining amongst the issues related to hacks and scams is that the EU Commission recognises the benefits that the DeFi can bring to the financial system. 

Therefore, if the industry experts and regulatory bodies can work out a solution that could provide much value to its users or customers, then in the long run, it will benefit the users of DeFi space.

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