DeFi closely scrutinized by the Banquee de France – The decentralized finance (DeFi) has grown rapidly in recent years. This new financial ecosystem brings many innovations and promises. However, it is also accompanied by new challenges. Faced with this, the regulators and other institutions trying somehow to understand and apprehend this emerging ecosystem.
The Banque de France looks into DeFi
The Banque de France has just published a fifty-page document entitled “Decentralized finance: what regulatory response? ».
This discussion paper was co-written by Olivier Fliche, Julien Uri and Mathieu Vileyn from the Fintech-Innovation cluster.
“This discussion paper succinctly describes the DeFi ecosystem, its main use cases, its promises, but also its limits. Among these, the document points to the high level of concentration that characterizes the DeFi ecosystem, as well as the sometimes very centralized governance of its applications, the first risk factor to be taken into account. »
Declaration of the authors
The document consists of a first part which reviews what DeFi is, its history and use cases. Quickly, the authors question the term “decentralized finance” in favor of the term “disintermediated finance”. According to them, the term “DeFi” misrepresents the reality of the ecosystem.
In a second part, the authors explore the different risks related to DeFi. Among them, they identified the risks associated with:
- governance;
- infrastructure;
- At the application layer, namely smart contracts;
- The risks associated with volatile investments.
You would have understood it. If the Banque de France studies the risks, it is to propose behind a regulatory framework to frame and limit them.
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Regulatory path: towards a systematic KYC
In its reflection on potential regulatory frameworks, the Banque de France submitted ideas for each type of risk identified above. Thus, for infrastructure risks, i.e. the risks linked to the blockchain itself, the authors propose the establishment of a framework, or even a surveillance for the public blockchains.
“Public blockchains should be governed by a certain number of minimum standards, concerning the design of the infrastructure’s computer code (risk of breakdown), the rules of governance, the effective number of validators and their concentration. »
Declaration of the authors
Secondly, the authors focused on the smart contract security. In this regard, they propose the establishment of certificates which make it possible to identify the protocols considered “safe”. These certificates will be awarded after extensive verification of the code by “specialized evaluators”.
Moreover, since they cannot certify all the protocols, the authors envisage a better identification of “actors responsible for providing DeFi services”. In other words, a systematic dox of the founders of protocols in order to have the “the ability to exercise the minimum control over these services required for their correction or termination”.
Finally, the authors turned to the subject of investor protection. For that, always the same song. They want to generalize the PSAN type statutes to all crypto service providers. In addition, the authors discuss the establishment ofKYC on the protocols interface in order to access it. In other words, more identification, less decentralization and anonymity.
Recently, the National Assembly spoke out aboutthe ban on the promotion of crypto projects. A strongly decried law, which could well kill all French projects in the bud without solving the problem of influencers based abroad.
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