European regulators urged to reconsider smart contract laws threatening DeFi – Cryptopolitan

Europe’s blockchain industry is lobbying against legislation that could negatively impact smart contracts and decentralized finance (DeFi) protocols. The Data Act, set for final negotiations by the end of June, aims to regulate data sharing within Internet-of-Things networks. However, the DeFi sector is concerned that the scope of the legislation, which includes a dedicated article on smart contract regulation, is unclear and may have unintended consequences for blockchain developers.

The European Crypto Initiative (EUCI) has urged policymakers to be cautious about potential spillover effects. Marina Markezic, executive director of EUCI, warned that if the Data Act requirements are too restrictive, it could hamper public blockchains for smart contracts. The trade association has submitted a policy paper to over 100 decision-makers, emphasizing the need for Europe to avoid harming innovation in the broader blockchain industry.

EU institutions’ stance on smart contract regulation

Sources involved in the negotiations have indicated that the European institutions aim to promote smart contracts through the Data Act and do not intend to regulate ledger technology. While a European Commission spokesperson stated that the controversial smart contract regulation article is technology-neutral, the industry’s concerns will be addressed in the ongoing negotiations.

As the legislative process enters its final stages, the European Parliament, European Council, and European Commission must agree on a final political stance during the upcoming trilogue negotiations.

The next trilogue meeting is scheduled for May 23 to resolve outstanding issues with the Data Act text. A final meeting is planned for the end of June, just before the rotating presidency of the European Council changes hands. If no agreement is reached, the process could face significant delays.

DeFi organizations, including the European Crypto Initiative, have informed policymakers of their concerns in the “biggest organized effort so far.” The group hopes that future data-sharing plans will consider the unique nature of smart contracts.

Industry alarm bells have been triggered by Article 30, which outlines essential requirements for smart contracts regarding data sharing. If the legislation is passed, smart contracts need to be designed with termination or interruption features, which contradicts the nature of blockchain-based smart contracts.

The EUCI paper argues that such requirements would introduce a single point of failure, increasing the risk of potential vulnerabilities being exploited.