French Central Bank’s Insights on DeFi Regulation

The French Central Bank’s Autorité de Contrôle Prudentiel et Résolution (ACPR) published a summary of its public consultation on a regulatory framework for decentralized finance (DeFi) on October 12.

In response to the initial paper discussing potential regulations for DeFi in the country, the public consultation lasted two months, from April to May 2023.

External contributions prompted the ACPR to reach unexpected conclusions, particularly concerning the structural persistence of centralization patterns:

The ACPR therefore believes that the term ‘disintermediated’ finance is more appropriate than that of ‘decentralized’ finance.”

The physical infrastructure that houses blockchain nodes is at risk due to this “paradoxically high degree of concentration” in DeFi.

According to the summary, the “vast majority” of respondents support deploying DeFi on public blockchains rather than private or permissioned ones.

However, they acknowledge that these blockchains must be regularly audited. Proposals to regulate intermediaries and certify smart contracts received broad support as well.

In conclusion, the ACPR deems it “advisable” to establish rules for the certification of smart contracts, define governance that would safeguard DeFi clients, and establish measures to support DeFi’s blockchain infrastructures.

The European Securities and Markets Authority (ESMA) contributed to the discussion on DeFi on October 11.

In a 22-page report, the European Securities and Markets Authority (ESMA) acknowledged the promised benefits of DeFi, such as greater financial inclusion, the development of innovative financial products, and the enhancement of the speed, security, and costs of financial transactions, while highlighting its “significant risks.”