The French Central Bank Considers Regulatory Framework for DeFi
The Autorité de Contrôle Prudentiel et de Résolution (ACPR), a part of the French Central Bank, has released a summary of its public consultation on decentralized finance (DeFi) regulations. The consultation, which took place from April to May 2023, revealed surprising insights about the persistence of centralization in DeFi.
The ACPR suggests that “disintermediated” finance is a more accurate term than “decentralized” finance.
The ACPR identified operational risks associated with the concentration of physical infrastructure hosting blockchain nodes, particularly with the involvement of cloud service providers.
Public Support for Public Blockchains and Regulation
Most respondents to the consultation expressed support for deploying DeFi on public blockchains rather than private or permissioned ones. However, they emphasized the need for regular audits of these blockchains. There was also broad consensus on proposals to regulate intermediaries and certify smart contracts.
ACPR’s Recommendations
The ACPR recommends establishing rules for certifying smart contracts, defining governance to protect DeFi customers, and implementing measures to support DeFi’s blockchain infrastructures.
ESMA Highlights Benefits and Risks of DeFi
In a separate report, the European Securities and Markets Authority (ESMA) acknowledged the potential benefits of DeFi, such as financial inclusion and improved transaction speed and security. However, they also highlighted significant risks associated with the technology.
Hot Take: Striking a Balance in DeFi Regulation
As regulatory authorities like the ACPR and ESMA delve into the world of DeFi, it becomes evident that finding a balance between innovation and risk mitigation is crucial. While the ACPR recognizes the need for regulations to protect customers and infrastructure, it also acknowledges the unique nature of disintermediated finance. The growing consensus on auditing public blockchains and certifying smart contracts reflects a desire for accountability and transparency in the DeFi space. As the industry continues to evolve, it is essential for regulators to foster an environment that encourages innovation while addressing potential risks.
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