European Regulators Want To Scrap Smart Contract Laws That Would Kill DeFi

Key Points:

• European legislators are inclined to revisit the language of the Data Act, which restricts the use of smart contracts in DeFi protocols.
• Supporters for DeFi have requested politicians to address worries about the Data Act spreading to other blockchain projects.
• The crypto industry is pushing the last round of discussions with European institutions.

European authorities have been working on adopting regulations for the larger crypto economy, and the European blockchain sector is now preparing to make a last push to avoid legislation that would kill the smart contracts that underlie the decentralized finance (DeFi) protocols from becoming law.

The Data Act, which is expected to be finalized by the end of June, intends to control data transferred between smart devices in Internet-of-Things networks.

The decentralized financial industry is concerned that the legal documents, which include an item devoted to smart contract regulation, do not clearly identify the scope.

Supporters for DeFi, such as the European Crypto Initiative, have urged legislators to address concerns about the Data Act’s potential impact on other blockchain projects. According to the European Crypto Initiative, such a spillover might possibly destroy DeFi. Marina Markezic, executive director of the European Crypto Initiative, told DL News:

“The worst-case scenario is whether we would even be able to use public blockchains for using smart contracts while complying with the Data Act requirements.”

The trade organization argued in a policy document distributed to over 100 decision-makers that Europe should not shoot itself in the foot by unwittingly harming innovation and the technical progress in the larger blockchain business.

According to sources close to the events, European legislators are trying to encourage the use of smart contracts via the Data Act rather than control the ledger technology. The legislators may address industry worries about the upcoming discussions next week.

Article 30, which covers critical standards for smart contracts for data exchange, sounded the alarm for the sector. The legislation, if approved, would require smart contracts to be written in such a manner that they could be canceled or halted. Legislators would need to establish when such action would be permitted.

According to the law, smart contracts would also need to be secured by stringent access control measures at the governance and smart contract levels.

Nevertheless, a representative for the European Commission said that the contentious item on smart contract regulation is technology-neutral.

The three European institutions heading the discussions have each formed their own position on the Data Act in the closing stages of the legislative process. On March 14, the European Parliament had a vote on the approval of its text. Regulators must now establish a final political accord with the European Council and Commission during so-called trilogues. The problem with the Data Act language will be addressed in the future trialogue meeting on May 23.

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