What Effect, If Any, Will EU DeFi Monitoring Have on the Industry?

With decentralized finance (DeFi) as the central focus of a new embedded supervision project, the European Commission is stepping up its efforts to keep track of crypto operations.

The Commission has submitted proposals for a study to determine how embedded supervision of decentralized finance might be enhanced. This is to gather additional information about the developing field.

European authorities are looking into ways to gain real-time access to the activity data stored in blockchain-based DeFi networks. The European Community views Ethereum as the most important payment settlement platform for DeFi, and this project is a precursor to its eventual regulation.

The automation of the acquisition of supervisory data directly from the blockchain will be the prime motive of the project. It will be carried out in order to evaluate the functionality of the available technology to monitor the activities of DeFi in real time.

Extraordinary Stringency in DeFi Regulations

The pilot program is anticipated to last six months and cost 250,000 euros (approximately 242,000 dollars).

Circle’s head of EU policy and strategy, Patrick Hansen, has suggested that implementing the system might have a significant impact. 

The EU Commission has launched a public call for tender for a study on "embedded supervision" of #DeFi on #Ethereum.

The aim is to study technol. capabilities for automated supervisory monitoring of real-time DeFi activity.

Est. tender value: 250k EUR.https://t.co/oZwb9QnLjG

— Patrick Hansen (@paddi_hansen) October 10, 2022

He continued by saying that the requirement for market participants (like DAOs) to manually gather, verify, and send data to authorities would be much diminished if regulators could automatically check compliance by accessing the data stored on the public blockchain.

According to CTO Larsson, a telecom and blockchain technology expert, the move is beneficial for DeFi. His optimism is based on the view that the move will enable the company to use cutting-edge methods to track down the real criminals rather than compiling large databases of honest people’s addresses, which can lead to violent crime (extortion).

Markets in Crypto Assets (MiCA) is the name of a document that was published by the European Securities and Markets Authority (ESMA) earlier this month. The document lays out the organization’s goals for enforcing regional legislation in this field.

Reiterating that cryptocurrency has no worth in itself, it raised the standard concerns about threats to financial stability. There is some good news: the strict requirements probably won’t be implemented until 2024.

Views of Ecosystems and their Worth

In terms of total value locked (TVL), the DeFi ecosystem has been more stable for the past four months. The lack of activity is like the crypto markets, which are still going nowhere.

Currently, the total value of the DeFi ecosystem, as calculated by DeFiLlama, is a little around $62 billion.

The total, which factors in staking platforms, is down 71% from its record high of $213 billion set in December. 

In addition, this is almost the same as the fall in the entire cryptocurrency market capitalization from its November peak.

However, with a 12 percent share of the industry and $7.5 billion in TVL, MakerDAO is the most successful DeFi protocol.