The European Commission Said That Standard Policies Are Inadequate For DeFi

According to a study paper financed by the European Commission and published this week, standard financial regulations are insufficient for controlling decentralized finance.

In a webinar outlining the report on Friday, Mattias Levin of the European Commission’s department for digital finance said:

“This report is part of our ambition to understand DeFi further, to inform our thinking about how to address any concern potential public public policy consequences.”

Recognizing the differences in information structure between DeFi and traditional finance, the paper on methods for regulating and supervising decentralized finance concludes that typical regulations are insufficient for treating decentralized finance services. In response, it provides a taxonomy of policy recommendations.

Second, a voluntary compliance structure would include protocols and legal entities. According to the paper, protocols and users can freely choose to follow specific policy standards to acquire various types of public support and assurance, such as a stamp of public approval.

The third is a public observatory based on public opinion and data from the blockchain. According to the study, such an entity would conduct public investigations and publicly publish views and warnings concerning certain DeFi protocols, procedures, and public address operations.

The report suggests early approaches but acknowledges that the optimal design for oracle markets remains largely underdeveloped.

The research, produced by a KU Leuven scholar, will help to inform the discussion on DeFi inside EU institutions and impending EU Commission proposals.

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