Upcoming regulatory advancements within the European Union governing decentralized finance (DeFi) may present a unique set of challenges for crypto startups while paving the way for conventional financial establishments, according to Marina Markezic, Executive Director of the European Crypto Initiative. In a recent conversation, Markezic shared insights about the European Commission’s impending DeFi report – slated for release on December 30, 2024. The report, nested under the Markets in Crypto-Assets (MiCA) structure, is due to examine the specific regulations pertinent to the DeFi space.
Markezic perceives the emerging regulations as an enabling factor for traditional banking enterprises considering a debut in the crypto sphere. She noted that a few banking institutions are exploring the issuance of stablecoins. Elucidating further on the impact, Markezic suggested that the move poses a notable hurdle for crypto-native projects striving to achieve compliance and licensure. The regulations could possibly set the stage for identifying what decentralization signifies in the context of regulatory decisions.
Touching on the complexity of the DeFi landscape, Markezic prefers to define it as a spectrum than a binary division. She implies the spectrum captures a wide range of services – from entirely decentralized systems, devoid of human interference or governance, to those exhibiting varying magnitudes of control and oversight.
Legal experts are stressing the need for lucid regulations than imposing rigid rules on the sector. Sascha Drobnjak, Elusiv protocol’s former legal and compliance head, highlighted the challenge of implementing regulatory measures without a tangible actor involved. Drobnjak entailed that adaptable principles stand a better chance against hard-and-fast rules when it comes to dealing with advancing technology innovations.
DeFi delivers financial services on prominent blockchain networks, largely on the Ethereum network, in effect, replicating services provided by financial establishments, but without the need of these institutions as intermediaries. The DeFi market forecast for Europe exhibits promising growth with an anticipated $6.69 billion in revenue generated in 2024, thus fueling the urgency for comprehensive regulation.