Decentralised finance happens to be one of the few high tech areas where the EU is doing quite well. Last week the Council adopted its position on proposed crypto market regulations for Defi products. They are very industry-friendly.

The proposed regulations are the most important to date for the European crypto industry because they establish rules for issuers, or the developers and companies behind tokens, as well as crypto-asset services providers, or exchanges and custodians.

Happily for the EU industry, the new regulations do not apply to non-fungible tokens, NFTS. Nor do they apply to utility tokens, meaning any crypto asset that provides access to a good or service provided by the issuer. Crypto-assets that are offered for free, airdrops, are also exempt. Crypto assets automatically created as a reward for maintaining the blockchain on which they operate are also unregulated.

It’s a different story for stablecoins. The EU remains attached to the idea of launching its own central bank digital currency. Whether pegged to a fiat currency or basket of currency or assets, any form of stablecoin will be under strict regulation including a ban on earning interest, and a requirement for all issuers to be granted permission by the relevant national authority.

Fully decentralised exchanges are not subject to these rules, most likely because, as we’ve been arguing, it would be impossible to enforce them.

In another pleasant surprise for the industry, self-custody software and hardware wallets do not fall under the new regulations either. Earlier announcements that the EU planned to ban anonymous wallets appear to have been premature: there seems to be a growing recognition in the EU of what is and is not possible in Defi and crypto…read more.