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German regulator plans to start regulating DeFi

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The German Federal Financial Supervisory Authority (BaFin) is calling for the regulation of the decentralized finance (DeFi) sector. The regulatory body wants the European Union to endorse a clear and uniform regulatory framework for the sector.

BaFin calls for crypto regulations

The executive director at BaFin, Brigit Rodolphe, wants the regulatory body to go beyond regulating the cryptocurrency space and start looking into the DeFi sector. BaFin is the regulatory body tasked with regulating cryptocurrency services in Germany.

Cryptocurrency companies that want to launch their operations in Germany must seek a crypto custody license from the regulator. The regulator also has oversight over other financial institutions like banks and insurance companies.

BaFin released an article talking about the DeFi space and the regulatory risks in the sector. The regulator wants EU countries to come together and regulate the space to protect investors.

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“One thing is clear: the clock is ticking. The longer the DeFi market goes unregulated, the greater the risk for consumers, and all the greater is the danger that critical offers that have systemic relevance will establish themselves,” the regulator said.

Rodolphe also addressed the risks posed to consumers, such as the technicalities involved, hacking attacks and the possibility of fraud. These issues have contributed to millions of losses. She also argued that DeFi should operate within regulations despite adopting new technologies.

“Utopia? Or rather dystopia? Who do I contact if I want to defer my crypto loan? What happens if my crypto assets suddenly disappear altogether? In any case, there is no deposit protection fund for such cases,” the report added.

She also said that all financial services outside traditional finance should be licensed and supervised and advocated for regulations to set up rules that will bring clarity to the sector. She added that regulatory frameworks should be similar in all European countries.

Crypto adoption in Germany

Germany is currently one of the most crypto-friendly countries globally. The country has a zero tax policy on long term cryptocurrency gains. A March report also showed that around 50% of Germans were interested in crypto investments.

In 2021, Germany also made strategic moves related to the crypto space, including laws friendly to blockchain and plans to tighten regulations for the space. According to Rodolphe, DeFi regulations should have the same level of effectiveness as the regulatory framework created for traditional financial products.

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