Incoming EU regulations for DeFi may hinder crypto-native projects but promote traditional financial institutions, predicts Marina Markezic, Executive Director of the European Crypto Initiative.
According to Marina Markezic, executive director of the European Crypto Initiative, naming regulations for decentralized finance protocols in Europe could encourage licensed traditional financial institutions to join while erecting substantial obstacles for crypto-native initiatives.
In an interview with Cointelegraph, Markezic addressed the forthcoming DeFi report from the European Commission, scheduled for release on December 30, 2024. Under the auspices of the Markets in Crypto-Assets (MiCA) framework, this report will assess the viability of DeFi ecosystem-specific regulations.
“We think that this regulation will facilitate those [traditional] players to come into this crypto space. We know that some banks are already thinking of issuing stablecoins,” Markezic said in response to the expected impacts of a DeFi regulatory framework, adding that:
“Whatever we have seen over the years being developed […] now it’s coming from this institutional point of view, and definitely will be harder for all the crypto native projects to get licensed and be compliant.”
The purpose of the EU report is to examine how decentralized systems, such as decentralized exchanges, should be regulated, particularly those without a distinct issuer or service provider. The report could potentially yield preliminary definitions of decentralization as perceived by regulatory bodies.
“We argue that the situation is very much not that type of a black and white scenario, but rather DeFi presented as a spectrum,” Markezic contends.
The ‘DeFi spectrum’ would comprise an extensive range of use cases, spanning from entirely decentralized systems that function autonomously without any human intervention or control to systems that demonstrate varying levels of control and management.
Drobnjak elaborated that the process of converting suggested measures into legally binding regulations presents further complexities.
“How and to whom can a regulator impose supervisory measures without a tangible actor in the system? What does it even mean to be tangible?” He continued:
The more a regulation is based on certain standards and principles rather than rigid rules, the easier it is to apply to future technological innovations
Financial services that operate on public blockchains, specifically the Ethereum network, are referred to as DeFi. In essence, it replicates the functions of financial institutions and banks (e.g., lending, borrowing, trading, and insurance) while excluding the involvement of those establishments as intermediaries.
In the future years, Europe is anticipated to witness a growth in the DeFi market. The DeFi sector is anticipated to generate $9.68 billion in revenue by 2028, expanding at a compound annual growth rate of 9.67% between 2024 and 2028, according to Statista. Revenue is projected to reach $6.69 billion in 2024.
