EU signals regulatory intent, ’embedded supervision’ of Ethereum DeFi

Patrick Hansen, a Circle Policy Advisor, has tweeted information about a European Union Commission tender to create “embedded supervision” of decentralized finance (DeFi) on the Ethereum network.

The estimated tender amount is €250,000 ($242,600), and the study’s completion time is 15 months.

The EU wants to collect information about Ethereum DeFi

Details of the study were disclosed via a contract announcement on the EU website. It requested that appropriately competent organizations launch a pilot study to create and evaluate technical options for “embedded supervision” of DeFi activity.

The warning emphasized “the open nature” of blockchain data and acknowledged that Ethereum is the most important settlement platform for DeFi protocols. The automated real-time data collection of DeFi activity for “supervisory monitoring” is being advanced by E.U. bureaucrats.

The technology that emerges from this project, according to Hansen, might have a “quite impact,” as it would improve the effectiveness of monitoring compliance and lessen the need for other parties to gather, verify, and send data to authorities.

DeFi is an anomaly in the cryptocurrency market because software protocols, which lack a central point of contact, are unable to adhere to Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations in the same way as CeFi platforms. This poses a challenge for international regulators tasked with stopping the exploitation of financial systems for money laundering and other types of financial crime.

Closing the door on financial criminals comes at the expense of the privacy of normal users, as evidenced by the recent “doxing” of Celsius users.

EU passes law on cryptocurrency legislation

The Markets in Crypto Assets (MiCA) bill was approved by the E.U. on October 5. If it were to become law, it would establish a thorough regulatory framework for digital assets in the area. On October 10, the European Parliament’s members will vote on whether to approve the proposal.

It’s interesting to note that Section 12a of the law addresses how DeFi is handled by noting that “completely decentralized” services are not covered by the regulation.

The “embedded supervision” of DeFi technologies, however, indicate that the E.U. still intends to monitor and regulate this space.

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