The European Union wants to have an eye on decentralized finance (DeFi) activity. Its executive arm, the European Commission, has proposed a monitoring project that will be carried out by analyzing Ethereum data.
The European Commission wishes to set up a technology solution that will be deployed to monitor decentralized finance activity. Ethereum being the main hosting network for DeFi applications, the project therefore aims to focus its action on its data.
What is this monitoring project?
The essence of its activity is limited to the authorized collection of data from the Ethereum network under supervision. The technological solution should make it possible to track DeFi applications in real time.
This could serve the needs of the EU with regard to establishing regulation of the crypto industry. It would then be a way of finding concrete answers to the many questions that the EU must answer before it can serve adequate regulation.
The technological tool provided for by this pilot project should use public data from the Ethereum blockchain. The reporting of the activities of crypto players would be greatly improved, as Patrick Hansen, director of the European Policy Circle, thinks.
In a document published by the European Commission, it appears that the project to set up a technological tool of this scope should cost 250,000 euros.
The European Union wants to avoid circumvention of the rules
Crypto industry players have found a way to circumvent centralized banking institutions by creating DeFi applications. Through the automation of financial services through blockchain technology, this category aims for the removal and replacement of traditional banks and financial services.
Decentralized finance is a booming sector that has not yet reached maturity. Most DeFi applications are still at an experimental stage. As a result, they do not provide 100% reassurance about their ability to provide the reliability and security that users need.
However, although these applications are not yet completely secure, they are already a huge hit with the crypto community. Investments in this type of application are estimated at several billion dollars in just a few years. However, they are not spared the risk of piracy.
One of the symbols of DeFi success is Uniswap. The decentralized platform facilitates the trading of crypto currencies completely anonymously. This decentralized exchange or DEX has millions of users with a trading volume exceeding $1 billion. It represents the fears of regulators who cannot control its activity.
Legislators around the world are convinced that the Uniswap platform is used to circumvent countries’ financial laws and regulations. In the context of the fight against money laundering, it is important to enforce existing laws and tax obligations.
It is for this reason that the EU is working to regulate the crypto-asset sector. Service providers in this area are under the supervision of the European Commission. The executive arm of the EU has won the support of the European Parliament which has paved the way for regulation of crypto-assets.