French Central Bank’s Consultation on DeFi Highlights Regulatory Path
The Autorité de Contrôle Prudentiel et de Résolution (ACPR), a body within the French Central Bank, recently published a summary of its public consultation on decentralized finance (DeFi). The document, released on Oct 12, outlines the regulator’s plans to address the risks associated with DeFi and reshape the finance sector.
The ACPR conducted a two-month public consultation from April to May, gathering views and opinions from market participants in France, Europe, and beyond. This consultation has helped the regulator gain a deeper understanding of the DeFi ecosystem and will inform forthcoming regulatory discussions at the European level.
DeFi: Disintermediated Rather Than Decentralized
The ACPR’s findings highlight some key issues with DeFi. It emphasizes that blockchain mechanisms have operational risks due to high concentration on cloud service providers. Additionally, it concludes that most DeFi projects have centralized components, making them disintermediated rather than truly decentralized.
As regulators worldwide work towards regulating the space, European regulators are aligning with the Markets in Crypto Assets (MiCA) regulations. In this regard, the French authority has published guidelines for shaping regulations in the wider sector.
New Pathway to Regulation
The ACPR’s guidelines focus on ensuring reliable blockchain architecture for all DeFi projects and establishing rules for smart contract rollout and operation. Platform governance patterns will also be defined to protect users interacting with DeFi products.
Participants in the consultation expressed their preference for DeFi transactions to remain on public blockchains rather than permissioned ones, as it ensures transparency and avoids centralization. However, they emphasized the need for frequent audits and enhanced security measures across all networks.
Furthermore, stakeholders called for the certification of smart contracts and regulations for intermediaries and user interfaces. The European Securities and Markets Authority (ESMA) has also released its analysis on DeFi developments and called for wider regulations.
Hot Take: Striking a Balance Between Regulation and Innovation in DeFi
The ACPR’s public consultation provides valuable insights into the challenges faced by the DeFi ecosystem. While recognizing the risks posed by centralization and operational vulnerabilities, it is crucial to strike a balance between regulation and innovation in this rapidly evolving space.
The guidelines proposed by the ACPR aim to address these issues by establishing reliable infrastructure, defining governance patterns, and ensuring transparency through public blockchains. Frequent audits and security measures will enhance trust and protect users.
As the DeFi sector continues to grow, it is essential for regulators to collaborate with industry participants to develop effective regulations that foster innovation while safeguarding market integrity and consumer protection.
By striking this balance, DeFi can realize its potential as a transformative force in reshaping traditional finance while operating within a robust regulatory framework.
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