European Commission proposes “automatic monitoring” for all DeFi

“Moving towards regulation and supervision of decentralized finance“is the name of a new document presented by the European Commission, which aims to pave the way for regulation of the sector by 2023.

“This report proposes a framework for assessing the positive role that appropriate public policies can play in developing the DeFi ecosystem and its contribution to the economy“, the paper notes.

According to the text, the DeFi ecosystem will be supported by European public institutions, once solutions that promote DeFi’s economic growth and financial stability are implemented.

To this end, they have established four policy approaches to implement these public actions. One of these actions calls for the creation of a public observatory to issue opinions based on public blockchain data (what they call “integrated supervision”).

The idea is that the European Commission could automatically collect data and information from decentralized protocols. This would also test the technological capabilities of blockchains to provide real-time monitoring data.

The other three actions to follow for the regulation of these platforms would be:

• Regulate the legal entities involved in DeFi.
• Introduce a voluntary framework for monitoring
• Constructing an approach to oversight/regulation of oracles.

Similarly, the European panel proposes to establish a kind of complementarity between DeFi and traditional finance as a whole.

To this end, they analyze which sources of risk and inefficiency in these platforms might not be fully addressed by private solutions, thus opening up possibilities for guaranteed public support.

The new proposal was published after the European Community’s Financial Stability Directorate presented a general plan to oversee Ethereum’s DeFi earlier this month.

Thus, Europe is taking the lead over other countries in terms of regulations targeting the crypto-currency and DeFi sector. Recall that recently a committee of the European Parliament voted in favor of the text of the Regulation on Markets in Crypto-assets (MiCA).

Formal regulation of the bitcoin market in Europe is expected to begin in 2024.