IOTA and EBA Shape Future of DeFi in Billion-Dollar Market
• IOTA and other industry players respond to the ACPR report on DeFi regulation, highlighting the need for a regulatory framework.
• The ACPR proposes adapting regulations to the unique characteristics of DeFi and being flexible rather than rigid.
• They also suggest combining traditional financial regulations with regulations from other economic sectors to create a regulatory framework.
IOTA and European Blockchain Association Respond to ACPR Report
The IOTA Foundation has been working in tandem with the European Blockchain Association, European Crypto Initiative, as well as the Global Blockchain Business Council (GBBC) in framing regulations for Europe’s decentralized finance (DeFi) market. Earlier this year in March, the French Fintech Innovation Hub of the Autorité de Contrôle Prudential et de Résolution (ACPR) published a report titled “‘Decentralised’ or ‘Disintermediated’ finance: what regulatory response?” seeking an explanation over a Decentralized Finance (DeFi) ecosystem, the challenges, use cases, and other limitations. IOTA underscores the importance of addressing risks and vulnerabilities in DeFi through formal certification and auditing of smart contracts, along with continuous monitoring and regular security audits.
ACPR Report Proposed Regulatory Framework
The report by the ACPR suggests different ways to regulate DeFi to address the risks involved. They propose adapting regulations to the unique characteristics of DeFi and being flexible rather than rigid. They also recommend combining traditional financial regulations with regulations from other economic sectors to create a regulatory framework. One of the main suggestions is to have a certification process for public blockchains based on factors like the accuracy of the computer code, the number of validators, and limits on validation concentration. This certification would also apply to smart contracts, taking into account specific services provided and governance.
Certification Process For Smart Contracts
The certification would have a limited duration, could be withdrawn at any time, and would require renewal if there are significant changes to code. They also propose embedding certification requirements directly into code in future if possible. In addition they consider prohibiting interaction with uncertified smart contracts as another way regulating DeFi products effectively .
Technology Risk & Supervisory Challenges
The ACPR report explores various technology risk associated with DeFI such as oracle-related risk concentration risk ,as well as supervisory challenges associated with complexity of these products . To mitigate these risks they suggest that blockchain-based public networks should be certified for accuracy ,number os validators etc .
Conclusion
IOTA Foundation has been leading when it comes establishing regulatory framework rules for European blockchain market . By responding positively towards ACRP’s proposal they have underlined their commitment towards fostering safe secure environment for users while promoting adoption . The proposed system is expected help reduce complexity provide flexibility while still protecting users from malicious actors .