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The European Commission, the European Parliament, and the Council of Ministers are currently in a trialogue engagement on Transfer of Funds (TFR) and Markets in Crypto Assets (MiCA) regulations. We expect a conclusion on this within a couple of weeks. Several experts assert that adopting TFR in its current form would establish a massive financial surveillance regime over non-fungible tokens (NFTs), European decentralized finance (DeFi), and the metaverse. Consequently, businesses in those regions might relocate to avoid the regulations. The German DeFi community is yet to cease communication. Instead, they have written an open letter to the European Union decision-makers, which supporters can sign. Peter Grosskopf from Unstoppable Finance, who in 2017 was a co-founder of Solarisbank, is one of the numerous individuals who initiated the letter. Grosskopf served as the Stuttgart Digital Exchange’s chief technology officer the previous year before launching his personal DeFi project with Omid Aladini and Maximilian von Wallenberg. In an interview about his interest in DeFi, Peter Grosskopf shared his thoughts about the proposed TFR regulations and the current sentiments of the DeFi community in Germany. He said, “Nearly everything we can do with a bank today, we can now do ourselves with DeFi apps. A modern and global infrastructure is emerging that is operable not only in North America, Asia or Europe but also globally.” He further stated: “DeFi tokens provide interoperability that enables various systems to collaborate. As a result of this, the new global financial system functions in a decentralized and manner. On the hand, the conventional financial system is incapable of achieving this”.
Regulators Fail to Understand DeFi
However, there are not many individuals as enthusiastic about DeFi as Grosskopf. Grosskopf feels that the general lack of understanding and political gridlocks contaminate the European DeFi market. Therefore, the European Union Parliament voted on the TFR. According to him, this is unfair because cryptocurrencies have stricter regulations than traditional financial institutions. He said, “Politicians are the people’s representatives. Voters elect them to represent not only our needs but also our opinions, interests, and preferences. However, DeFi has no lobbying power. This is why no one has ever discussed the direction DeFi is evolving and the potential benefits of decentralized financial systems with politicians. Now, let’s put this issue behind us. It is time for European DeFi participants, creators, and Protocol developers to become more active and demonstrate their skills.” According to Grosskopf, if regulators were aware of the benefits of DeFi in providing publicly accessible, auditable, and transparent transaction records, they would be able to think differently. In addition, blockchain technology allows for digital identity authentication, which represents the identity of an individual or company. He further stated that storing a digital identity in a non-hosted wallet is possible. Then, whenever the user has to provide proof of identity via an electronic process and authenticate his identity, he can do so securely using the data on it. However, an actor must determine whether this identity has been created and is legitimate in this case. And such solutions are necessary to respond to regulatory requirements with technology and, if possible, to define DeFi industry standards.
Finding A Voice
After two of the most influential European Union Parliament committees voted in favor of TFR, the DeFi community was initially displeased. Grosskopf has been a crypto realist for many years. His work at Solarisbank has familiarized him with both the ancient and modern worlds. However, Grosskopf believes that all regulations are becoming increasingly stringent and restrictive. And this is not just limited to the crypto world. As a cryptorealist, he believes the community must be proactive and develop their solutions before imposing them. They intend to protect them, but they’re doing the exact opposite. In conventional finance, transactions are only reported to the government when they appear suspicious. However, even for something as common and harmless as an Apple laptop, TFR will require banks and companies that process payments to keep records of every transaction exceeding 1000 euros in the crypto world. From the viewpoint of Grosskopf, this constitutes an invasion of privacy. According to him, “Buying a laptop is neither unlawful nor suspicious. The possibility that there is a record of my name, contact information, and registration address with each purchase of a product or service that costs more than $1,000 is absurd. Hackers or criminals could use the information and then check the items in your possession and find your address.” Grosskopf believes that the TFR is not a good idea from the perspective of data protection. He stated, “Additionally, it does nothing to prevent money laundering. They are attempting to protect us from it but are doing the opposite.”
Why DeFi Doesn’t Have A Lobby In Some Locations
The adoption of TFR would impede the growth of European projects. Consequently, less capital would flow into the continental DeFi market. As a result, it would lead to slower growth in the DeFi sector and make Europe a less desirable market. Clients will be more likely to choose foreign service providers. Such an outcome will have disastrous consequences for the effectiveness of European services. But, in the end, it plays a significant role in determining the establishment and location of new businesses. Grosskopf believes that it is possible to establish more companies outside of Europe under certain circumstances. Switzerland remains the most obvious location for DeFi companies. The result of European policy will be precisely the opposite. European policies will not be able to reach the DeFi market. Consequently, this could harm the goal of combating money laundering. Apart from this, the CEO of DeFi also identified issues that require improvement, including usability and consumer protection. In addition, DeFi’s community members must start communicating with legislators and regulators. In this way, the company is transparent and less prone to corporate or political influence and corrupt practices.