France's Central Bank's Agency for Prudential Regulation (ACPR) recently published a summary of the results of a public consultation focused on establishing a regulatory framework for decentralized finance (DeFi). The consultation spanned two months, from April to May 2023, and was initiated following earlier documents discussing potential DeFi regulations within the country. The input received from external sources during this consultation offered some significant insights to the ACPR, notably regarding the structural robustness of the decentralized model.
One notable revelation was the "paradoxically high concentration" of operational risks within the DeFi space, which is tied to the physical infrastructure housing blockchain nodes. Cloud service providers play a central role in this structure. Due to these findings, the ACPR now suggests that "disintermediation finance" may be a more fitting term than "decentralized finance."
According to the summary, an "overwhelming majority" of respondents expressed support for continuing to deploy DeFi on public blockchains rather than private or permissioned ones. However, there is a consensus that these public blockchains should undergo regular audits. Furthermore, proposals to regulate intermediaries and certify smart contracts gained broad support during the consultation process.
In conclusion, the ACPR believes it is prudent to establish rules for smart contract certification, define governance structures for safeguarding DeFi customers, and introduce measures to support DeFi blockchain infrastructure. Meanwhile, on October 11, the European Securities and Markets Authority (ESMA) also joined discussions about DeFi. In a 22-page report, ESMA recognized the potential benefits offered by DeFi, including greater financial inclusion, innovative financial product development, and improved speed, security, and cost-efficiency in financial transactions. Nevertheless, the report emphasized the "significant risk" associated with DeFi as well.
