The European Commission is ramping up its crypto surveillance efforts with decentralized finance (DeFi) as the primary target for a new “embedded supervision” project.
The Commission has released a tender for a “study on embedded supervision of decentralized finance” as it pushed for more data on the embryonic industry.
European regulators are seeking solutions to gather real-time blockchain data from DeFi activities. The project is a stepping stone to the regulation of Ethereum, which the EC considers the “biggest payment settlement platform for DeFi.”
The primary focus of the project will be on “automated supervisory data gathering directly from the blockchain” in order to test the technological capabilities for “supervisory monitoring of real-time DeFi activity.”
Heavy-handed DeFi regulations
The pilot program will continue for six months with an estimated value of 250,000 euros (approx. $242,000).
EU policy and strategy director at Circle, Patrick Hansen, commented that the system if implemented, could be “quite impactful.” He added that if regulators could automatically monitor compliance by accessing public blockchain data, it could “drastically reduce the need for market participants (e.g. DAOs) to actively collect, verify and deliver data to authorities.”
Telecoms and blockchain expert “CTO Larsson” that the move was a good thing for DeFi as it would use “modern tools to hunt the actual criminals” instead of building “big databases of honest people’s addresses which will create violent crime (extortion) instead.”
Earlier this month, the European Securities and Markets Authority (ESMA) released a paper outlining its plans for the implementation of the regional regulatory framework called Markets in Crypto Assets (MiCA).
It cited the usual concerns about financial stability risks and reiterated the stance that crypto has no intrinsic value. Fortunately, the heavy-handed regulations are not likely to go into effect at least until 2024.
On Oct. 11, BeInCrypto reported that the EU confirmed its decision to ban cryptocurrency services to Russia as geopolitical tensions escalate.
Ecosystem outlook and value
The DeFi ecosystem has been consolidating in terms of total value locked (TVL) for the past four months. The lackluster levels of activity mirror that of crypto markets which are still sideways.
TVL across the entire DeFi ecosystem is currently just under $62 billion, according to DeFiLlama. The figure, which includes staking platforms, has fallen 71% since its December all-time high of $213 billion. This is also virtually the same as the decline in total crypto market capitalization since its November peak.
MakerDAO is the leading DeFi protocol with a 12% market share and $7.5 billion TVL.
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