The European Union is also considering expanding its Markets in Crypto Assets (MiCA) legislation to include other digital assets and crypto innovations, such as those in the Web3 and financial sectors. Birgit Rodolphe, a senior executive at the German financial services regulator BaFIN, has called for decentralized finance to be regulated. She cited the risks of fraud and hacking as justification for regulating the sector.
According to Rodolphe, DeFi may appear to be a magical word, but it is not. “The scene is rich in technical problems, hacks, and fraudulent activities. Damage in the three-digit million range is not uncommon,” she said.
Rodolphe also emphasized that DeFi is not as “grassroots democratic and altruistic” as its supporters claim. This directly contradicts DeFi supporters’ claims that it enables a permission less economy and provides financial services to the bank less who cannot access traditional financial services.
She did, however, admit that DeFi is still a niche market. However, if it becomes a competitor to the traditional financial sector, regulations will be required. The remark comes just days after German regulators issued new tax rules for cryptocurrency in the country.
Germany has recently been one of the most pro-crypto countries. It ranked first in a Coin Cub survey of the world’s most crypto-friendly countries.
The EU is considering extending MiCA to DeFi
The European Union is also considering expanding its Markets in Crypto Assets (MiCA) legislation to include other digital assets and crypto innovations, such as those in the Web3 and financial sectors.
Initially, the law was intended to regulate stable coins. However, regulators and the government are considering broadening it to include non-fungible tokens and DeFi.
However, it is likely that regulators will not impose any for the time being and will instead study the issue before enacting any legislation.
Rodolphe, on the other hand, believes that time is running out. She claims that: “The longer the DeFi market remains unattended, the more the risk for consumers increases. And this makes the greater the risk that critical offers that have systemic relevance will establish themselves.” As a result, she advocated for regulations that would allow those offering innovative DeFi solutions to operate safely and legally. “Ideally, such requirements would, of course, be uniform throughout the EU in order to prevent a fragmented market and to leverage Europe’s entire innovation potential,” she added.
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