March 27, 2024
French Regulator Views DeFi as 'Disintermediated,' Not Truly 'Decentralized'
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French Regulator Views DeFi as ‘Disintermediated,’ Not Truly ‘Decentralized’

On October 12, the Autorité de Contrôle Prudentiel et de Résolution (ACPR), a part of the French Central Bank, released a summary of its public consultation on a regulatory framework for decentralized finance (DeFi).

The public consultation took place over two months, spanning from April to May 2023, following the publication of an initial paper discussing potential regulations for DeFi in France. The insights gained from external contributions led to some noteworthy revelations, particularly concerning the persistent structural centralization patterns in the DeFi sector.

“The ACPR therefore believes that the term ‘disintermediated’ finance is more appropriate than that of ‘decentralized’ finance.”

The ACPR expressed concerns about the operational risk stemming from this “paradoxical high degree of concentration” in DeFi, particularly related to the physical infrastructure housing blockchain nodes, where cloud service providers play a pivotal role.

According to the summary, the “vast majority” of respondents supported the notion that DeFi should continue to be implemented on public blockchains rather than private or permissioned ones. However, they also recognized the need for regular audits of these blockchains. There was broad consensus regarding proposals to regulate intermediaries and certify smart contracts.

In conclusion, the ACPR deems it “advisable” to establish regulations for certifying smart contracts, define governance measures to safeguard DeFi customers, and implement measures to support DeFi’s blockchain infrastructures.

On October 11, the European Securities and Markets Authority (ESMA) also chimed in on the DeFi discussion. In a 22-page report, the ESMA acknowledged the promised benefits of DeFi, including increased financial inclusion, the development of innovative financial products, and improvements in financial transaction speed, security, and cost. However, the report also emphasized the “significant risks” associated with DeFi.

Image by starline on Freepik

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