- Major blockchain organizations including the European Blockchain Association (EBA), the IOTA Foundation, and the European Crypto Initiative (EUCI) have issued a comprehensive response to the ACPR’s report on decentralized finance (DeFi) regulations.
- The ACPR report, which explored DeFi, its benefits, limitations, and the challenges it poses, suggested a regulatory response including certification mechanisms for public blockchains and smart contracts, and potentially limiting interactions to only certified smart contracts.
As blockchain experts, we are offering an insider’s perspective on the blockchain industry’s response to the Autorité de Contrôle Prudential et de Résolution’s (ACPR) recent report. The French Fintech Innovation Hub issued this report in March 2023, outlining a regulatory approach for the evolving DeFi ecosystem and presenting some challenges and potential solutions.
In response, major blockchain entities have collectively expressed their perspective on this significant development.
The #IOTA Foundation, @EUBLASORG, @EuCInitiative, @GBBCouncil and other dozen organizations joined efforts to reply to the ACPR’s report on the future of DeFi regulation. Read about it 👇https://t.co/FMISqN4ESy
— IOTA (@iota) June 1, 2023
The Blockchain Industry’s Take on DeFi Definition
The ACPR’s report offered its interpretation of DeFi. However, the response from entities like the EBA and IOTA Foundation indicates that this definition doesn’t cover all essential elements, such as user control over assets and the potential of governance structures.
According to them, DeFi is an emerging financial system that provides functionalities extending beyond traditional finance, emphasizing user autonomy. Hence, they argue that DeFi could be viewed as both decentralized and disintermediated due to blockchain technology and smart contracts.
DeFi’s Potential to Democratize Finance
The respondents also stress DeFi’s potential to democratize financial services, increasing financial inclusion by offering accessible monetary tools. Although DeFi still faces significant challenges such as centralization, power concentration, cyber threats, and interconnectedness, governance models are being developed to address these issues. The response further compares Layer 1 and Layer 2 solutions to tackle scalability and security concerns.
Regulatory Challenges and Proposed Solutions
The industry response highlights that the risks and vulnerabilities tied to DeFi are mainly associated with Layer 2 solutions and DeFi’s application layer. It suggests that while certification and auditing of smart contracts are essential, they should be complemented by continuous monitoring, bug bounty programs, and regular security audits.
When it comes to regulatory issues related to DeFi and DAOs, the collective voice of the industry argues against re-centralizing crypto assets, highlighting risks to security, trust, and governance. Instead, they propose a proportional regulatory approach that balances innovation and user protection.
Regulating Intermediaries and Promoting Open Dialogue
The respondents further note the importance of regulating DeFi intermediaries, emphasizing the need for a tailored approach due to the wide range of actors and use cases. Maintaining an open dialogue with regulatory bodies is essential to ensure that the industry remains innovative and consumer-focused.
In conclusion, the industry’s response to the ACPR’s report presents a comprehensive and thoughtful approach to the regulatory challenges posed by DeFi. This response also underscores the industry’s commitment to maintain an open dialogue with regulatory bodies worldwide, fostering a more informed and beneficial DeFi environment.