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French Central Bank Puts Its Suggestions for DeFi Regulation

UTC by Bhushan Akolkar · 3 min read
French Central Bank Puts Its Suggestions for DeFi Regulation
Photo: Depositphotos

The French central bank seeks to address the regulations for DeFi and stablecoins which go unattended in the pan-European MiCA regulations.

On Thursday, April 11, the French Economy Ministry and the Banque de France published a consultation published two consultation papers individually to discuss European crypto asset regulation as well as the developments in the Metaverse. The French central bank shared its closed examination of decentralized finance (DeFi) along with its approach to regulation. Also, the discussion comes at a time when there’s a growing use of tokenization in finance as well as the use of blockchain technology in different economic sectors.

French Central Bank and Its Approach toward  DeFi

The Fintech-Innovation Hub at the French central bank’s Prudential Supervision and Resolution Authority has written the paper. The paper by the French central bank notes that the term DeFi has a range of different crypto asset services along with technologies and associated risks. It adds that the current regulations are not able to address these rapidly evolving changes. It adds:

“The main idea developed in this paper is that the regulation of disintermediated finance cannot simply replicate the systems that currently govern traditional finance.”

Besides, the paper also notes that regulation through certification will help in strengthening blockchain infrastructure security. Also, it will be easy to supervise decentralized autonomous organizations (DAOs) by making them incorporate as well as control intermediaries that allow access to DeFi services.

The European Union’s Markets in Crypto-Assets (MiCA) regulation doesn’t have fully decentralized services within its scope. For MiCA to extend its regulatory reach to DeFi intermediaries, it will have to redefine “crypto asset service providers”.

The paper also adds that the blockchain code will be subject to minimum standards. A private blockchain will have the advantage of selecting trusted players, however, it shall require a more specific regulatory framework.

Also, the code within the smart contracts will be subject to certification through various mechanisms.

Stablecoin Regulations and Metaverse Consultations

In order to complement the Defi regulations, stablecoins regulation will also become necessary. This is complicated by the MiCA regulation since “the MiCA Regulation does not apply to services provided in a fully decentralized manner without any intermediary”. Furthermore, the authors propose an additional rule in the regulation of stablecoin use in DAOs.

On Thursday, the French Economy Ministry also published a consultation paper seeking to stop the dominance of global internet giants, within the Metaverse. The Emanuel Macron government is seeking views on policy issues such as privacy, health, and environmental risks or virtual worlds. It seeks to create a “digital sovereignty” for Europe. The consultation paper notes:

“The immersive virtual worlds of tomorrow can take many forms”. The goal is to “propose an alternative to the virtual online worlds today put forward by international giants.”

During last year’s election campaign, French President Emanuel Macron also spoke of building a European Metaverse. In May next month, the officials of the European Union will produce an EU strategy on virtual worlds.

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