European Commission says TradFi norms are inadequate for DeFi

The European Commission has recognised the inadequacy of standard financial policy for regulating DeFi services. This is stated in the report.

The document will serve as the foundation for shaping forthcoming proposals for oversight of this emerging segment.

The work on the report reflects an effort to understand the nature of decentralised finance and to inform authorities on how to respond to potential policy consequences.

The authors of the document set out the principles for formulating proposals to amend legislation:

• Develop standalone regulatory provisions governing the activities of legal entities on the basis of microprudential requirements;
• Spread the voluntary compliance mechanism to both protocols and legal entities;
• Create a public oversight council that takes into account the views of stakeholders and network data. Such a body will conduct publicly accessible studies into specific DeFi protocols and practices.

The report recommends developing an approach to regulate oracles. However, the authors acknowledged that the optimal design ‘remains largely underdeveloped’.

Earlier, the European Commission announced a tender to study automated collection of DeFi activity in the Ethereum network in real time for regulators.

On 10 October, members of the European Parliament’s Committee on Economic and Monetary Affairs backed the draft on supervising the crypto-asset market MiCA. The document does not establish clear frameworks for regulating DeFi protocols.

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