On October 10, Patrick Hansen, a policy advisor at Circle, tweeted out the specifics of a proposal from the European Union Commission to build “embedded supervision” of decentralised finance (DeFi) on the Ethereum network. It is expected that the study will be finished in fifteen months’ time and will cost around €250,000 ($242,600).
A contract notice that was posted on the website of the EU provided details about the study. It requested that organisations that met the required qualifications launch a pilot project to investigate the creation and evaluation of technical solutions for “embedded supervision” of DeFi activities.
Patrick Hansen’s tweet:
In the notification, Ethereum’s status as the most important settlement platform for DeFi protocols is acknowledged, and it is noted that “the open nature” of blockchain data would be targeted. EU authorities are working to improve the ability to collect real-time, automated data on DeFi activities for the purpose of “supervisory monitoring.”
According to Hansen, the technology that is developed as a result of this study has the potential to be “quite impactful.” This is because it would make the process of monitoring compliance more efficient and would reduce the need for other participants to collect, verify, and deliver data to the relevant authorities. Because there is no central point of contact in the DeFi software protocols, they are unable to comply with the Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations that govern CeFi platforms in the same manner. This places DeFi in a legal grey area that separates it from the rest of the cryptocurrency industry.
This provides a challenge for global regulators who are responsible with preventing other types of financial crime, such as money laundering, from being committed via the world’s financial institutions.
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