AMF Wants DeFi Regulatory Framework, Discussion Paper Released

AMF has shared its views on the matter regarding granting licenses to crypto firms. It also shared its views on the regulatory issues raised by decentralized protocols that make up the decentralized finance (DeFi) ecosystem. It supports the globally made rules for DeFi.

DeFi is basically the financial activities happening on-chain on automated, decentralized and disintermediated blockchain protocols. Protocol is basically a set of rules. The discussion paper was released on Monday, June 19, 2023.

Discussion Paper Highlights Points of DeFi Regulation

It has raised certain points regarding decentralized finance like the degree of regulation on DeFi, the use of open source software, trading protocols, assessment of risks associated with related activities, and raised the concerned risks linked with smart contracts that run the transactions. They are automated and need a controlled debate on the matter. As per its nature, crypto needs regulation to protect the investors and to implement the innovation.

One way to enhance the regulatory framework for DeFi is to know the blockchain protocols, which requires approval from certain nodes on the network. Evaluation is then made based on whether the blockchain nature is permissionless or not. This clarifies the number of nodes or individuals controlling the activity.

Another important feature of DeFi is smart contracts. They are autonomous and incapable of making changes. So, it should be considered that which smart contract can be the subject of legal and regulatory requirements and how smart contracts that are already developed can be made regulatory.

AMF Secretary General Benoit de Juvigny in May, noted the paper which shows EU policy development on DeFi, portraying that it is a much more difficult procedure to classify the participants, unlike those in normal finance. The European commission also supports the clarity on blockchain based regulations.

AMF Needs Balanced Regulatory Framework

Financial Stability Board (FSB), the global standard setters are working towards setting the defined standard for the DeFi sector. It is working with a group for IOSCO which is an international securities regulator, to publish the recommendations by year end.

The paper states that AMF assists the initiatives and wants to enhance the engagement with stakeholders and will allow the balanced regulatory framework that will support the development of decentralized finance.

AMF has taken the effort to clearly define DeFi and the governance of its system i.e. DAO and urges a discussion for defining the risks associated with it. DAO is an organization governed by codes instead of leaders.The laws are made to govern the centralized crypto exchanges but the decentralized exchanges are not under any type of governance.

Hence, it has been a challenge to supervise the platform. The community members are invited for the discussion and views regarding this matter till September 30, so the useful suggestions will have a chance to get accepted and implemented.

France AMF has voiced its support for international regulations governing decentralized finance. The discussion paper holds the challenging regulatory parts like DAO and smart contracts. The paper also said that due to the expansion of DeFi activities the investors need to be protected and fosters should be stopped from further innovations, hence a regulatory framework is needed.

Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing