As such, the council announced its plan in a white paper entitled “Key Elements of an Effective DeFi Framework,” which considers the needs of organizations like the International Organization of Securities Commissions (IOSCO), the Financial Stability Board and the European Commission.
According to the Crypto Council, groups like IOSCO, the Financial Stability Board and the European Commission, which represents part of the governing body of the European Union, will be making policy recommendations regarding DeFi protocols in the coming months. In order to help facilitate their work, the council called for a more contemporary set of policy recommendations that would help the nascent space mirror more traditional financial markets.
The European Commission, for one, is working toward “digital sovereignty” over the next decade. The governing body has emphasized data, infrastructure and technology as it seeks to take a leadership role as the international standard bearer in the digital space, according to the organization. “As a former regulator, I sympathize with policymakers grappling with the regulatory challenge of regulating financial services with no central intermediary. Without a central actor, there’s no regulatory hook,” says Linda Jeng, head of global Web3 strategy at the Crypto Council for Innovation. “That’s why we put in significant resources to develop a new regulatory approach that works for the DeFi industry, regulators and most importantly, the consumers.”
The DeFi ecosystem provides access to financial services through the use of blockchain technologies that, in essence, remove the “middlemen” featured in more traditional financial institutions, notes the council. “Both TradFi and DeFi regulatory frameworks should achieve the same regulatory outcomes: safety and soundness of market participants, financial stability, and consumer and investor protection,” Jeng said. “The regulatory paradigm just needed an update.”
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Francesco Biviano @f_biviano ·Oct 9
"It's incredible to witness the rapid evolution of this industry. From DeFi summer just 3 years ago to now integrating tokenized real-world assets within a regulated framework–the pace is staggering!"
One of the key features of the council’s outline is the creation of “Public Good Protocols,” which have five distinct layers; those are decentralization, open source, autonomy, standardization and non-discriminatory access and use. The council also recommends emphasizing the regulation of businesses operating in the DeFi space rather than those public protocols themselves. That includes mandatory disclosures for “app-operating” businesses, an independent certification apparatus and consumer safeguarding via responsible development.
“We have a unique opportunity to redefine the future of our financial landscape,” said Ji Kim, head of global policy and general counsel at the Crypto Council for Innovation. “We hope this white paper offers regulators a nuanced and comprehensive overview of DeFi and a properly balanced regulatory approach that ensures consumer protection, financial stability and responsible innovation. We look forward to continuing to work with policymakers and regulators around the world to best harness and encourage the exciting innovation that DeFi provides.”
