European Commission Advisor: ‘We’re Currently Not on Track to Regulate DeFi’

The founders of Brussels Blockchain Week set out with a few goals in mind when they set out to host the event: introduce the crypto-curious to the space, showcase the Belgian blockchain ecosystem, and build some bridges between the industry and regulators.

“If there’s one thing Brussels symbolizes to people it’s regulation,” the event’s co-founder Christophe de Beukelaer told Decrypt ahead of the conference.

A Brussels MP, de Beukaleur made headlines when he pledged to take his salary in Bitcoin this year, a decision he has said he does not regret despite the cryptocurrency’s recent crash. He and investor Raoul Ullens worked together to organize Brussels Blockchain Week.

“We’re not maximalists or anarchists,” he said. “We think crypto has something to bring to the world. We don’t think it will destroy the old world, it will co-exist.”

‘Over-regulation kills innovation’

Taking place just a few weeks before European institutions are due to publish the finalized version of Markets in Crypto Assets (MiCA), a key piece of legislation that is set to unify approaches to crypto across all 27 member states, the first ever Brussels Blockchain Week has been positioned as a kind of peace conference between digital innovators and financial regulators.

On day one, the mood with regards to the coming regulation was mixed.

“We’ve been putting effort into getting regulated,” said Martin Brunncko, executive vice president for Europe at Binance, pointing to the firm’s recent approvals in France and Italy. He said that having a “single market”, as MiCA proposes, would be vastly beneficial. Under the current plans, companies would be able to gain approval in one member state, and with it a pan-European ‘passport’ to offer services throughout Europe, saving the hassle of complying with each regime individually.

“It will be a lot of work [to get the initial license],” said Laura Chaput, head of regulatory compliance at Brussels-based market-maker Keyrock. “But we embrace regulation, we want to have a clear regulatory framework.”

But for others, there was a fear that regulation will put a stop to the party before it has even had a chance to get going.

“Over-regulation kills developer appetite,” said Darius Rugys, a general partner at Maven 11 Capital. “It kills innovation.”

Speaking to Decrypt, De Beukelaer characterized the approach of preemptive regulation as a European problem. “In Belgium, in Europe, the problem is we’re too conservative and risk-averse,” he said. “We’re too concerned with what may happen.”

Speakers repeatedly referred to “educating” lawmakers, the prevailing idea being that they don’t understand the sector but are plowing ahead with imposing rules on it anyway. But it’s not clear that many politicians and policy professionals are open to being educated.

“I would really like it if they were here, listening to us and mingling with us and learning what’s going on,” commented Jonas Wenke, a principal at VC firm Commerzventures. This was after he took a straw poll of the room (admittedly the smaller of two in the venue) to ask which attendees were from the European institutions. Nobody raised their hand.

Eurocrats weren’t totally absent from the conference though. Peter Kerstens, an advisor for financial sector digitalisation and cybersecurity at the European Commission, gave a talk in which he quickly established which side he was on.

“I myself am very, very bullish about blockchain and Web3,” he told the audience. “We believe the broader [use] of ledger technology is transformational.”

“We’re currently not on track to regulate DeFi because it’s very rare to have something truly decentralized. But this could change.”

Because MiCA has already been under discussion for years, there is still some confusion about how the final regulation will look. Kerstens said that, while discussions are ongoing, the current proposals would “most definitely” include NFTs. The status of Web3 more generally, though, is less clear, because as Kerstens pointed out, the legislation is aimed at intermediaries like exchanges—imposing rules on a truly decentralized finance project would be much more difficult.

“We’re currently not on track to regulate DeFi because it’s very rare to have something truly decentralized,” Kerstens said. “But this could change.”

He added that the European Commission has “many bad ideas” about how to regulate DeFi, and “no good ideas”—encouraging attendees to make suggestions if they had any.

Calls for authorities to move faster—and slower

As ever, there was frustration with the slow pace of change at government and financial institutions. Pierre Person, a French MP who spent his last day in office at the conference, used the slow crawl towards the launch of a digital euro as an example.

“The ECB is saying in three years there’s going to be a digital euro, but we can’t wait that long,” he said. “We need to open regulation to have a private stablecoin in Europe.”

He added that if European companies were unable to build a euro-backed stablecoin due to uncertain regulation, he was worried that someone outside the eurozone would end up controlling the dominant form of digital euro. US-based Circle last week announced that it is launching a euro-backed digital asset called Euro Coin.

But at the same time as there was a wish for swifter clarity on regulation, there was also a prevailing sense that it is too early for governments to make these big decisions.

“We need to open regulation to have a private stablecoin in Europe.”

“The reality is we’re over-regulating Web3 because we’re scared,” De Beukelaer told Decrypt. “We’re trying to regulate before we know the use cases.”

He added that, while bureaucracy is frustrating, there is one small benefit to a slow-moving system: “Things could still change.”