A recent report revealed that the European Trade Association is calling for policymakers to include the Decentralized Finance sector in the upcoming upgrade of the Markets in Crypto Assets (MiCA) rules.
Recently, the European Union introduced the MiCA regulation intended to serve as a well-rounded regulatory framework for digital assets. The rule aims to create a more transparent and secure business environment for crypto entities.
However, the proposed regulatory framework reportedly lacks provision for Decentralized Finance, a sector that is witnessing rapid growth in the crypto industry currently. This exclusion has raised concerns among regulatory agencies in the country.
According to the report, the AFME (Association for Financial Markets in Europe) complained about the absence of DeFi rules in the recently published MiCA rules. The association emphasized the need for an all-inclusive rules that govern both local financial services and DeFi.
In addition, the AFME pointed out that the exclusion of DeFi from the MiCA regulatory framework can have detrimental consequences. The association expressed that the act can dilute the efficiency of the set of regulations the policymakers intend to launch soon.
Furthermore, the association cautioned that bypassing the DeFi sector in the current regulatory framework could inadvertently give rise to risks. It added that it could also cause financial instability or secondary consequences.
AFME Urged The EU To Embrace And Regulate The DeFi Sector
To further expatiates its argument, the AFME cited that there is an active collaboration between the Traditional Finance TradFi and DeFi. It added that although there is a limited overlapping function between the two sectors, they need adequate management and surveillance.
The association believes that active oversight over the two sectors can help to mitigate potential threats and thereby prevent any potential upheaval in the country’s finances.
Acknowledging the potential of Decentralized finance, the AFME considered it a significant invention in the financial sector. Also, it added that DeFi represents research and development laboratories and outsourced innovation for the traditional financial industry.
Furthermore, the agency proposed a strategy by which the impact and growth of the decentralized finance sector can be effectively managed. He urged the European Union to create a taxonomy format that would differentiate digital assets and DeFi activities.
According to the regulator, developing a practical regulatory framework for the decentralized finance sector is pivotal to mitigating peculiar problems that plague the industry.
In addition, the AFME proposed that the European Union should regulate the DeFi using a risk-based approach to promote consistency in all phases of centralization.
Fraudsters Continue To Exploit The DeFi Sector
Meanwhile, according to data from a crypto data analytic firm, the DeFi sector is one of the major targets of fraudsters in the crypto industry. Since the start of this year, millions of dollars in crypto assets have been reportedly stolen from the DeFi market.
In January and February, about $22 million was reported stolen from several DeFi projects as the sector became popular for being targeted by hackers. Many DeFi platforms such as Dexible, dForce network, and Orion have been reportedly exploited in the past.
Apart from hacks and phishing attacks, the report shows that the majority of the DeFi platform attack was due to protocol logic, while others were due to smart contract language and rug pulls.
For context, protocol logic is a standardized code (which developers use in creating smart contracts and decentralized projects) that can be exploited by hackers to loot users’ funds.
However, flash loan hacks seemed to be the most rampant hack method in the sector. Hackers use this method often, as reported by the analytic firm.
With the rapid increase in the DeFi and crypto industry growth rate worldwide comes an equally rapid rise in financial crime rates. It is uncertain whether the rate will eventually decrease as hackers continue to improve their skills and discover more loopholes to exploit.
