Upcoming DeFi Regulations in Europe: Challenges for Crypto Projects & Opportunities for Traditional Institutions
Summary:
Anticipated decentralized finance (DeFi) regulations in Europe could pose challenges for crypto-focused projects while incentivizing traditional financial institutions to join the crypto sphere, according to the European Crypto Initiative's Executive Director Marina Markezic. With a DeFi report by the European Commission due end of 2024, Markezic argues for viewing DeFi as a spectrum that ranges from fully autonomous, decentralized systems to those exhibiting different levels of control. Statista forecasts that the DeFi sector will generate about $6.69 billion in revenue by 2024 in Europe.
Anticipated regulations for Europe's decentralized finance (DeFi) could pose considerable hurdles for cryptocurrency-based projects while incentivizing traditional licensed financial players to join the space, according to Marina Markezic, Executive Director of the European Crypto Initiative. Markezic, in a conversation with Cointelegraph, examined the impending DeFi report from the European Commission scheduled for December 30, 2024. The report, which falls within the Markets in Crypto-Assets (MiCA) framework, will contemplate the appropriateness of specific rules for the DeFi environment.
"We anticipate that this regulation will pave the way for these [traditional] players to step into the crypto world. It's known that some banks are contemplating issuing stablecoins," Markezic said regarding the likely effects of a DeFi regulatory framework, supplementing that it will likely be tougher for crypto-devoted projects to obtain licensing and abide by the forthcoming rules.
The EU's report seeks to understand how to regulate decentralized systems, particularly those without an evident issuer or service provider, like decentralized exchanges. A significant outcome of the report may be the preliminary definitions of what regulators consider to be decentralization.
Markezic believes that DeFi should be viewed as a spectrum rather than starkly distinct scenarios. This 'DeFi spectrum' would include various use cases, from completely decentralized systems that operate autonomously with no control or human intervention, to systems that show differing levels of control and governance.
Instead of imposing stringent rules for the industry, legal experts are calling for clear standards. "I believe it's essential for governments, policymakers, and the industry to first concur on what truly qualifies as DeFi," says Sascha Drobnjak, prior head of legal and compliance at the Elusiv protocol. He further argued that transforming suggested actions into enforceable regulations add complications.
DeFi refers to financial services that run on public blockchains, mainly Ethereum. Essentially, it duplicates the services provided by banks and financial institutions - such as lending, borrowing, trading, or insurance - but operates without these institutions as middlemen.
The market for DeFi is projected to grow in Europe in the next few years. Statista foresees the DeFi sector will yield around $6.69 billion in revenue in 2024, with a compound annual growth rate of 9.67% between 2024 and 2028, reaching $9.68 billion in revenue in 2028.
Published At
4/26/2024 11:26:10 PM
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