Summary:
- An intensive two-day summit in Brussels saw EU policymakers basking in MiCA’s limelight and making open calls for regular and constructive dialogue with the crypto industry.
- NFT and Defi are here to stay, but legislation not likely in the immediate future
- CBDCs are likely to shake up the payment system.
Some 200 delegates gathered in Brussels for an intensive two-day summit on the latest political and policy developments related to digital assets. Blockchain for Europe gathered policymakers, industry leaders and experts from across Europe. EU legislation was top of mind as was constructive, global dialogue between the public and private sectors that could shape consistent international rules for the crypto industry.
Here are 5 critical things to know.
1. Mighty MiCA – Government makes open call for regular dialogue with industry
EU policymakers are basking in the limelight having completed political negotiations on what is to-date the world’s most comprehensive legislation on stablecoins and crypto exchanges. Industry representatives’ interventions welcomed the global leadership, underscoring the double-whammy effect of EU action – providing a framework to inspire others as well as creating momentum for consistent international standards. Despite all this positivity, The Commission, EP representatives (Koravik and Kaili) and the French finance ministry all conceded points made by industry that more clarity will need to be provided by regulators and supervisors to ensure MiCA is appropriately implemented. To that end there was an open call for regular and constructive dialogue, something welcomed by industry participants.
2. Nifty NFTs – Legislation likely but not in immediate future
In an interesting debate which showcased some of the diverse use-cases for NFTs (gaming, music, art collectibles) panellists debated ‘when an NFT is an NFT’. The Commission recognized that for a large part, NFTs are excluded from the MiCA framework but cautioned against this being a blanket exemption, particularly when NFTs are being used for value transfer and traded akin to financial instruments (in which case either the EU’s market rules – MiFiD – or MiCA may well apply). There was also a general conclusion that the EU is likely to legislate on NFTs in the future, albeit not immediately. For its part, the European Parliament will draw up a non-binding report on NFTs in the coming months which is likely to provide important input for the Commission’s future thinking.
3. Definitely DeFi – Next Steps remains to be seen
There were several panels dedicated to various aspects of DeFi, showcasing some of the potential benefits vis-a-vis centralized finance (CeFi) such as greater efficiency, transparency, speed and lower costs. Policymakers also flagged some of the challenges DeFi brings, in particular in relation to regulation and supervision which is essentially designed for centralized entities enabling direct dialogue (and accountability) with distinct jurisdictionally registered counterparties. Quite how the EU (and others) will deal with DeFi remains to be seen. But there seemed to be a consensus that blockchain technology and DeFi applications are here to stay and as such, will need to come under some form of regulatory framework in order to safeguard financial stability and consumer protection.
4. Certainly CBDCs – Expect shake up in payment landscape
The ECB spoke about the EU’s ambitions for a digital euro, a project which will likely have major direct and indirect impacts/ramifications for the crypto ecosystem. The EU is still finessing its thinking around functionality but it seems likely that a retail CBDC will shake up the EU payment landscape, potentially crowding out certain traditional financial services activities offered by CeFi as well private stablecoins. CBDCs were also discussed in an international context, with examples of workstreams in other jurisdictions, in particular China, which is seeking to use its digital currency as a geo-political tool.
5. Aptly AML – Agreement on collaboration to safeguard digitalized economy
A final mention must go to the important issue of anti-money laundering (AML) and terrorist financing in a digitalized world. Panelists from the public (Commission) and private sectors (Coinbase, TRM) talked through the importance of ensuring robust mechanisms for digital asset providers and the broader digital ecosystem when it comes to playing our part improving AML systems. Whilst statistics cited underscored fraud and illicit activity represent only 2-5% of crypto activity – less than in CeFi and far less than in cash – there was nevertheless agreement on the importance of working together to ensure an AML regime can work for an ever-more digtialized economy.
The specific challenges of privacy as well as verification for self-hosted wallets (or ‘personal’ wallets to use Coinbase’s preferred appellation) brought about an interesting exchange and left participants with much food for thought concerning implementation of the EU’s recently-agreed TFR framework (implementing FTAF’s travel rule) and the on-going negotiations in Europe on its AML package.
