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DeFi is viewed as “disintermediated,” not “decentralized,” by the French regulator.

On the 12th of October, the Autorité de Contrôle Prudentiel et de Résolution (ACPR), a component of the French Central Bank, concluded its examination of the regulatory landscape for decentralized finance (DeFi), publishing a digest of its public consultation. The consultation, spanning from April to May 2023, was initiated following the release of an initial document exploring potential regulations for DeFi within the nation. External inputs led the ACPR to unexpected revelations, particularly concerning the enduring prevalence of centralization patterns: “The ACPR thus posits that the term ‘disintermediated’ finance is more fitting than ‘decentralized’ finance.” The operational hazard tied to this “paradoxically high degree of concentration” in DeFi revolves around the physical infrastructure hosting blockchain nodes, with cloud service providers playing a pivotal role. As per the summary, the “overwhelming majority” of participants advocate for the continued deployment of DeFi on public blockchains rather than private or permissioned alternatives. However, they concede that these blockchains necessitate regular audits. Consensus also surrounds proposals to regulate intermediaries and authenticate smart contracts. In summation, the ACPR deems it “advisable” to formulate regulations for certifying smart contracts, delineate governance ensuring the protection of DeFi clientele, and establish measures supporting the blockchain infrastructures of DeFi. On the 11th of October, the European Securities and Markets Authority (ESMA) contributed to the discourse on DeFi. In a comprehensive 22-page report, the ESMA acknowledged the promised advantages of DeFi—such as heightened financial inclusion, the evolution of innovative financial products, and the advancement of speed, security, and cost-effectiveness in financial transactions—while underscoring its “significant risks.”

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