What We Talk About When We Talk About DeFi in Europe - DeFi Security Summit 2025

Transcript

Hi everyone. Uh thank you so much for joining the workshop. My name is Marina and I'm not Viara unfortunately. That is the basically the title of the presentation today. She will join us a little later. We'll have two people presenting this workshop today for you and it's really about DI and DeFi regulation in Europe. Uh it might be a little bit very specific to one jurisdiction. So the European jurisdiction uh but it is basically where we are working in and what we focus on. So this is what our expertise is and what we can share with you. Uh my name is Marina as I mentioned and I'm leading the European crypto initiative. Uh I'm a co-founder of this

initiative which is an advocacy organization based in Brussels and for the last six years we have worked on policy initiatives in the EU working on the markets in crypto assets regulation working on anti-money laundering travel rule many different things that are indirectly or directly affecting DeFi. So that's where we are coming from and this is why the presentation is going to be today about. I would like also to encourage you to if you have any questions to just raise your hand. We have a mic. We can debate. I think this is like in a way a workshop session. So I would really like you to be as open as possible. Uh you can be uh this workshop is recorded. So we always keep that in

mind when we're lawyers and talking about regulation and stuff. Uh of course that's not legal advice or any other advice, but I think still it's it's very much I would say useful to debate. Um, so anytime you can stop me, ask questions for whatever I'm going to debate here. I would just maybe start with a a show of hands like how many of you do know anything about the regulation of crypto assets in the EU? Have you heard about the markets and crypto assets regulation?

Yeah. Okay. More or less. Thank you. So I know where we can start. I'm going to talk about a lot of things today. One thing is going to be stable coins and the stable coin situation in the EU. The second one I'm going to focus on is DeFi depending on what we understand DeFi is, but that's going to be the second part and the third part is really going to be more about smart contracts and code and regulation when it comes to smart contracts. So those are the topics and again in between you can stop me anytime and we can debate uh these topics.

>> Yeah, >> we need to Oh yeah, thank you. >> Thank you. So maybe just a little bit as an intro about European crypto initiative. As I mentioned, we're working in uh the EU when it comes to policy. So, any type of proposal, legal proposal that comes up that could affect crypto assets or blockchain is something that we're working on. We do host events, we have

meetings, write position papers. So, if you're interested in what's happening in the EU, you can visit our web page is uh EU.ci and you can see also a few of our position papers there and the members we're working with. So when we comes to DeFi, it's really hard to understand basically what is DeFi and what is what are all the parts that are part of the D5 ecosystem. Especially as a lawyer, uh you know, we're very focused on definitions. It's really hard to say okay that is this specific service that is part of DeFi or there is another I don't know token that is part of DeFi. But um as we said uh there's different different things and some are regulated, some are not

regulated. So from this presentation here you can see that we're looking into stable coins, DeFi, derivatives, oracles etc. And the most regulated in the EU currently are stable coins. You have probably heard that there's Mika is regulating stable coins and we do have few different types of stable coins in the EU. two different types. That is the difference from what you have uh for example in the EU US when it comes to the um basically stable coin framework. There we talk about two different types.

The first one is the e-oney token which is basically defined as a type of crypto asset that maintains uh the value at one specific um fiat currency. So it's really something that we have had in the past already the e-money tok the e-oney uh for example directive but not the eani tokens. So it's something that Europe is already I would say used to partially but we translated a framework that we had in the past into the crypto assets area as well. The second one is very specific and basically just specific to crypto assets which is the asset reference token which is the one that the value is referencing by several

different fiat currencies or several commodities or other several crypto assets or a basket of different assets. So when it comes a little bit more complicated uh usually it is an asset reference token. To my knowledge at this moment we do not have one regulated registered asset reference token issuer. So it is I think one of the hardest thing to comply with when it comes to Mika. And the other part when it comes to the e-oney tokens we do have already few uh entities that are regulated like circle was one of the first ones and few others and those are already I would say active in the EU. they were getting licenses from different jurisdictions

like France and I think Ireland recently with a so it's something that I would say is working and it is implemented in the EU going back a little bit I I mentioned the markets and crypto assets regulation which is the framework that regulates stable coins it does not regulate only stable coins it regulates crypto assets in general so we do have different types and I think most of the like I would say the crypto audience is familiar with the utility tokens versus security tokens. We do have something similar in the EU. So the crypto assets the name or other crypto assets that is something that I would say we would usually call the utility token in the

general slang. And then we do have security tokens that are financial instruments but they're not regulated in Mika. They are regulated in another regulation that exists before which is MIT. So it doesn't really matter what the container of the asset is. Even when it comes to let's say the NFT standards or other standards, what is important for the EU regulator is really what is within that token. And if within that token is something that resembles a financial instrument, it's basically regulated by existing regulations and directives like MIDI and MIFR. If it's a new thing that is a utility token, it's called a crypto asset and is regulated uh by Mika. And so different types are

the crypto assets and then the stable coins which are regulated specifically and I would say very heavily. One of the very important part of regulating stable coins is that the issuer has to be incorporated in the EU and it has to go through the whole licensing process. There's also different uh basically requirements that they have to fulfill in order when it comes to specifically um reserves in banks in the EU. I think this is one of the I would say toughest things to comply with. But there is a regime it's heavily regulated and we have already existing use cases especially when it comes to e-oney tokens. So when it comes to DeFi, the

question is would you put stable coins and regulated stable coins as part of DeFi or not or would only the decentralized stable coins be part of DeFi and in way subump into this definition of DeFi. What happened in the EU is that if the stable coin does not go through this regulatory process and have a license to issue stable coins in Europe, unfortunately it is not in a way compliant. And what we have seen in the past is that the non-compliance stable coins have been delisted. You've probably seen that already. I don't want to name the stable coins but some of the major ones have been delisted from European Union exchanges. Uh so that is in way the consequence. So we are here the stable coin regulation exists for

almost one and a half years already. It was applicable last year in summer. So thinking about this time end of year we have already one and a half year of Mika being applicable when it comes to stable coins. The very interesting part that is happening at the moment is that there's some debates questions around reinterpretation of a specific part of the regulation which talks about global stable coins. So the global stable coins in a way we define it a stable coin that is issued in different jurisdictions and those stable coins in general are fungeible between themselves between jurisdictions.

It's really hard I would say at least from our point of view to imagine that there would be a stable coin that we know and use very often but it would not be funible between jurisdictions just because of the control of like how and in which way the basically government would regulate the stable coin in that specific jurisdiction. But we have come to this point where we are asking this questions in the EU. So the first um question that was asked is a Q&A which is an institute where you can basically ask question to authorities in the EU when there's not where there's something not clear about for example the markets and crypto assets regulation. So the French authority asked an official

question in April this year about those issues. We call it a multi-issuance in a way problem or question which means that if there's one issuer that is one global issuer and issue stable coins of course they need to have a subsidy in Europe they need to be incorporated in Europe as well but the tokens they issue they are again globally used globally fungeible and if this is okay with how Mika was written and if this is also okay with one of the most important goals of Mika which is financial stability. So the financial stability was one of the four goals of Mika. The other ones was consumer protection, supporting innovation and basically

having a legal framework uh that is applicable over the whole EU. I don't want to go into details. This is all public information. You can find it online. You can see the questions. You can see how the questions were basically defined and where the challenge is. But the most important thing really is that those stable coins are already in a way registered. They are compliant. They are listed in Europe as well and on exchanges and they're globally uh I would say applicable. So if the answer here to this question comes as a yes, Mika is enough, we can continue with what we have, nothing will change and we'll have the global stable coins being

funible between themselves. If they say no multi-issance is not okay then we will try to imagine or think about a world where one specific stable coin and it doesn't need to be denominated in euros it can be denominated in dollars or any other st uh any other fiat uh basically currency that stable coin will be fungeible only within the European Union and cannot be transferred with the uh basically cannot be exchanged or cannot be identical as the other stable coin that is going to be used globally.

Yeah, we can go into that rabbit hole imagining what would that mean? What would that mean even for liquidity when it comes to stable coins in Europe? I would say that we are already you know having this challenge where we don't have a lot of liquidity when it comes to euro denominated stable coins for example but they at least exist and we do know that there is a motivation that came from Mika for the existence of euro denominated stable coins because they have uh an easier way to comply with Mika versus the one that are denominated in other fiat currencies. So I would say that you know it's a part of a process of us understanding how Mika is really going to affect the whole EU crypto uh industry.

But the most important thing is that the time when this question was asked was back in April this year. Um basically it was last year and we still do not have a question to this uh an answer to this question. So it became a very very political question. Uh there was you know a whole debate. I don't know if you've read in the news but the European Central Bank uh basically was involved in this discussion. The European Commission was involved in the discussion. The European Parliament like all the European institutions were looking into this question. Is Mika a framework that is basically creating a safe space? It's creating a uh financial stability within the European Union. and

should we ban multi-issurance? And so the latest um I would say debates around that came within an opinion from the European systemic risk board on this question. And the opinion was basically saying back in September that the multi-issuance should be prohibited and banned and we should have different tokens that are not funible between themselves within jurisdictions. But there's another catch. Alternatively, if the multi is not banned, they have a whole set of recommendations of what the basically stable coin issuers have to follow if they if the mika basically the the the basis of the mutation stays as it is. So I would say that that already

gives us kind of a hint towards you know the mutations maybe not being banned. If they would be sure I would say from a political uh stance that the mutations would be kind of banned and there is a political agreement around that I don't think they would write the alternatives. Uh so we don't know as I said there's no answer to that. We still don't know what the answer will be, but at least we can look into some of the recommendations. And so one of the very um I would say interesting recommendations you have have a list here is basically I would say probably reopening Mika but adding more safeguards and more regulations on those specific tokens,

stable coins uh that are issued globally. for example being directly supervised by the Europe European Economic Banking Authority. At this moment, only the significant stable coins are supervised directly by EBA and there is no significant stable coin at the moment being defined in the EU. So they're all supervised by national combatant authorities which sit in each member state and there's 27 of them. So that would be quite a difference. They would be all supervised by the EBA. There a few other things that are quite interesting but if you're uh interested again that's all public information you can read more about it so I concluded with the first part we

have another 40 minutes but if you have any questions I can stop here for a moment and basically debate the stable compartment if there's no question I would go to the second debate uh second point which is defi I would say this is really more of a deck kind of challenge or anything that is like decentralized when it comes to lending etc. So that part is pretty unclear. Probably a few years ago when Mika was finalized you have read in the news that DeFi is not regulated under Mika. But there's no mentioning of DeFi in Mika. There's no mentioning anywhere even in the articles or in the first like part of Mika that is not um that is not legally viable uh legally uh um uh

basically um that does not have to follow legally. It's just a resol part which is more of a description. So, Mika is uh DeFi is not mentioned but we do have a mention of decentralization which applies to any other service providers or even uh issuers in certain part and the part that is very important is the rest 22 which is where crypto asset services are provided in a fully decentralized manner without any intermediaries they should not fall within the scope of Mika so of this regulation fully decentralized are outside of the scope So what fully decentralized means we don't know again it's not defined it will be defined by

each member state specifically and their authorities because the authorities are directly supervising service providers as I mentioned before Mika is regulating crypto assets defining the issuance and the definitions but it is regulating also uh crypto asset service providers and this is something that you probably know you've heard about a market infrastructure bill in the US it's something similar so it's basically regulating a list of crypto as a service providers that could be exchanges brokers uh and advisors there is a list so it's not like anyone but it is important which one in way is is kind of regulated so usually the most famous ones are brokers exchanges

custodials when it comes to decentralized services that could be similar to let's say exchanges or custodials then we have that resid And I think the whole question of like the most of the services that we think about are DeFi in the space boils down to this to understanding what this is and how do we interpret that and what means fully decentralized. I have to say that EUI our organization was basically instrumental to the point that we have this part in Mika at all that was debated back in 202122.

So it was a really really long time ago. In the first draft of Mika, we never had anything mentioning decentralization, Dows, DeFi. It was really a new concept to the parliamentary representatives at the time. And we had a huge workshop with like 90 different people from the parliament showing what is the difference between uh centralized exchange versus a decentralized exchange and saying that decentralized exchanges or any type of like DeFi product should not be regulated under Mika because we do not understand them very well. in 2021 like DeFi was really really new for regulators at the time and it was really the first time I think that most of them really delve deeper into this and there

was a compromise agreed at the end of the day that DeFi will not be regulated fully decentralized service providers will not be regulated but of course I I think personally that that is the best we could do at that time right now we have to deal with what we have which is trying to understand and you know create kind of an understanding of this definition also in practice with national combatant authorities which are the ones that are supervising. I also want to add something here where I know that there's been a lot of debates about the Mika 2.0 and you know Christine Lagard and maybe a few other politicians thinking about that but to our understanding at this moment there's not going to be a Mika

2.0 O in a sense where there would be a whole part regulated by uh by Mika on DeFi. So there is going to be and there are going to be a few proposals to reopen Mika and basically focus on few new things that are centralized supervision maybe the part of the stable coins that I mentioned before but there's no intention at the moment to with our understanding of regulating DeFi and having a specific DeFi uh framework within Mika so also from a political point of view I think it's important to know that we just started with the new European Commission's mandate which means it's at the beginning and now we are setting the stage and the plan for the next 5 years

which means that if right now within the first year of the commission there was no intention to basically regulate DeFi of course that's not public no one says anything publicly about that or issued a um a paper but that is our understanding that probably means that in the next four years we will not go into regulating DeFi but we never know like things are changing very quickly so that's why you know our associations and others are really following everything that's happening in the space to react as quickly as things happen. There's another part that is article 140 which is linked a little bit to what I was saying before. So there's no intention directly to regulate DeFi

within Mika to right now. But there is a report that we are expecting from the European Commission that has to work on DeFi and they need to look into what uh what the situation is with DeFi at the moment on a market and also trying to understand should we regulate that or not and is it something that has to have like an immediate specific I don't know article or uh a whole uh few um I don't know pages of regulating DeFi. So that is something that again we're are following if that is going to happen but it was supposed to basically be published I think even a more than a year ago. So we still don't have this report. We'll see if it will happen but this is something to look up for if

you're interested in DeFi. So another very important thing is as I mentioned before basically crypto assets versus securities or financial instruments. Mika says I'm not regulating financial instruments. This is something that Miffid regulates. So there's another very important question within DeFi. It's of course how we define the services that I mentioned before. Um so there's like different services many more that I have you know put here on a slide. What are the ones that even fall under Mika and then this in a way exemption of decentralization could be taken into consideration or what are the ones that are not even regulated in Mika

but could be regulated in Miffid or Miffir and then this basically exception of a decentralization might not even be considered in that in those cases so it's a I would say a very very complicated question and going back to clarity we did have a paper written by the Danish authority on the um basically DeFi and decentralization there. And the question really was can we create like a test for understanding how to define decentralization and that would be something that would be useful for the whole industry and the industry could look into this and say am I decentralized like how does it look like

on a governance side? how does it look like from a legal perspective or uh are we decentralized from like an economic part point of view and a technical point of view. So they basically wrote a paper that is not a legal opinion. It's really just like basically a paper that has no I would say legal consequences but it of course does have taught leadership consequences and this paper is already I think out there for like more than a year as well. It has been debated uh quite a lot and I think it's pretty interesting because it really puts this like decentralization in three different categories. If I was like mentioning before first a like a project or in a way an organization a DAO has to be

decentralized on a technical side and then we need to look into the governance and the third one is then the legal. So there are a few questioners like that. For example, if you look into the first question, are you using crypto assets? And then you say yes. Is it an issuance of crypto assets? For example, are you issuing uh a token? Then you say for example, yes. Is it the issue offered to the public? You say yes, of course. And then is the offer maybe uh uh led by an entity that should be regulated for example within Mika? And if the question is yes, then you would need to comply with Mika, write a white paper if you want, of course your tokens to be

publicly issued, listed, etc. And if there's no, then it's not covered under Mika. But it's really the the I would say the devil is in the details to understand what are even those like what is the definition of an issuer? what is the definition of someone that is basically listing the token and someone that is uh like for example an exchange offering the services of exchanging and brokerage around the token. So a lot of like I would say pretty detailed uh parts. One very interesting part is that um they were talking about front ends as well. And basically the idea is that if uh service decentralized service has a front end basically that front end could

be something that is going into uh even like a kind of a legal relationship with other users. And that is something that is also important to look into what are the contractual obligations and how those entities go into contractual obligations with potential users or um any other type of like stakeholders in the ecosystem. So that part again is something that is not unified all over Europe but it is dependent over each member state which makes things even more complicated.

So for now the situation with the uh with the D5 paper is such that it exists out there. We have not seen any consequences in terms of basically this paper being cited by any judge uh publicly or lawyer or any type of project. We have not had any direct enforcement actions when it comes to DeFi or decentralized projects at the moment. But uh I think it's still a very important thing. So and it is I think one of the most comprehensive documents when it comes to the definition of decentralization in Europe. So there's another uh basically picture from the presentation which talks about the centralized offer the decentralized

offer and something that is in between the CDFI the terms that we were using uh quite a lot in the in the past and there's this idea that you again have to be decentralized enough in order not to be in a scope if you're somewhere in between it will really depend on the entity on the national combatant authority that will supervise that and basically we do a whole analysis of like is this decentralization enough of a decentralization to be excluded from the regulation or not. So that is the situation we have at the moment and uh this is a basically tweet from Rune from again 2024 quite a long time ago but we're coming up and debating this question around front ends what is

important for front ends and would for example decentralized front ends be a solution to the debate that we're having at the moment when it comes to uh basically DeFi we don't have a question to that either uh I think there's like you know you know better than I do. There's a lot of projects that are looking into how to build decentralized front ends. But at the end of the day, we're here assessing the I would say the legal questions and not really the business questions or UIUX. That's another topic. From a legal point of view, I think that is quite an interesting debate and we might, you know, hear or see debates in the future or we see some probably enforcement actions or something similar happening

in the EU, but for now it's really just like a debate that uh we don't have an official answer to. So when it comes to DeFi and the definition of DeFi, there's of course the technical aspects there as well. We have debated a lot about the markets and crypto assets regulation, the definition of stable coins, definition of crypto assets and then also the basically service providers but there's of course the technical aspect as well that is important for DeFi and I would say specifically smart contracts. So globally I have not heard about any regulation regulating smart contracts or regulating the definition or any type of like design features when it comes to

smart contracts but Europe has done that in a previous mandate and basically this regulation is called the data act and it is applicable right now there's a whole debate about the data act and I have the last basically paragraph part of the presentation describing the the data act uh there but just like as a basically thought experience experimented like when we think about code and DeFi as I mentioned except from this specific uh definition uh in in the data act we have not had any I would say intense debate or even public debate about public versus private blockchain we have not had a lot of debate around the technical

regulation of the crypto assets and crypto asset service providers in Mika just because it was really focused on the asset and it was not focused on the technical aspect. I'll stop here just to give uh an introduction to Viara. Hi Vara, thank you for joining. >> Hello. Thank you for having me. >> Maybe we'll do just a quick break for you to introduce yourself and then we can go into the last part of the presentation. >> Sure. Yes. And thank you for being here. I hope it's something that you find useful either by watching it here in person or later on uh the recording. But I'm I'm Vara. I'm part of the European crypto initiative working alongside with Marina. So we as she probably already told you we have been working on quite a

lot of issues that either directly or indirectly affect DeFi and obviously security is a very big part of that. So me my background is in human rights. So I also think quite a lot about the privacy implications and how privacy frameworks interact with blockchains particularly public permissionless ones. But we are here also to be as useful as possible to all of you thinking about the security aspects of what is being built. So thank you Marina for also covering this already more than a half.

>> It's a perfect introduction because if we think about security we have to think about basically the technical aspect as I mentioned and there are a few different elements. I feel like the regulators might be looking into the blockchain itself and the security of the blockchain within the debate of tokenization. So that part is something that has been debated right now in the EU. Uh and it's a very important one because the assets that we are regulating right now in for example the DT pilot regime are something that we have been regulated in the past as well under MIFIT that I mentioned before. But the new thing is really the technical aspect and the tokenization uh and the use of the new technology that we have

not used before and so this question comes to mind. The other one that was debated in the past was also around smart contracts and smart contracts basically um auditing there there was a paper uh written by the French authorities on a proposal for having some kind of a legal framework when it comes to auditing of smart contracts. many question were asked there. I'm sure that that would be something that would be very interesting to the audience and I have debated with quite a lot of um different security experts as well during that time but that is really something that is not a law yet. It was really just a debate. The logic was really if we do not regulate DeFi right now or if DeFi is not regulated within

Mika, >> DeFi is basically happening on chain that means that the technical aspect has to be secure and so probably the logic is we need to look into the technical aspects and the blockchains and smart contracts. So those are the basically thought processes of regulators in the EU and it might happen that in the future we might be looking into that and we might be debating with regulators about those those aspects. So the last part of the presentation is really about the data act. I don't know V if you want to take it um from here but it's really something that again is already applicable. There has been a lot of work that we have put into this as UCI as

well and there are very very interesting I would say outcomes of that work that were published just yesterday. So this presentation is very up to- date and I think it's going to be quite a good news also uh for the end of this presentation. So for you to see that our work in a way is not in vain. We are trying to do our best and quite some like quite often we do succeed in basically having specific changes in specific regulations that are uh something that basically does benefit the industry and does not hinder or limit the industry. So I can go on with this but >> sure. Yes. So um the data act is actually a very favorite

topic of mine because it illustrates quite clearly why we exist as an organization and why we are so well fitted to do the things that we are doing which might sound a bit over the top but it is um I'm I'm going to walk you through how this uh thing panned out and I think you might agree with me. Uh so the data act was proposed a few years ago and the idea is to basically provide more rights and possibilities for people like for all of us users of specific tech when it comes to um connected devices generating information from like use use cases from the usage of those devices. So the main um uh point was to basically regulate connected devices,

IoT devices and those data uh transmissions that occur between them or while they are being used. So think smart fridges for example. Um but the tragedy I would say tragedy also of our industry is that um when it tries to overlap or to enter more the traditional space quote unquote traditional space there are things that are already there and words that already have meanings. So the example in this case the clearest example in this case is smart contracts that we as an industry use. you know this just we know what it is that it's

not like that it's just a piece of code. However, smart contract when that was a term that initially um came into the public uh kind of space was something that drew in a lot of lawyers who were considering this as just a subcategory of contracts. So this was a good way to kind of get more lawyers interested in the topic but then we got them interested for the all the long wrong reasons I would say and smart contracts has also existed as a term in other technical uh scenarios. So it's not just the blockchain terminology that is uh being discussed here and this is indeed the case with the data act which was actually never about blockchain which is

ironic because then it provided the first ever definition of of a very key term smart contracts for our industry without even meaning to do so. So back when this was still a proposal, we wrote quite a lot of nice papers saying, "Hey guys, please let's remove this because this would create quite a lot of confusion." And then the reaction was like, "Oh, but we don't intend to regulate you, so it's fine. It's not about you." And we were like, "Okay, if if you don't intend to regulate us, maybe clarify it somewhere in the text so it's not confusing." And then they were like, "No." So this didn't happen.

And fast forward a year and a half and we had this publication by the European data protection board. I won't go won't go into the details but they were saying it was specifically about blockchain technology specifically describing the GDPR in this case like the general data protection uh regulation um overlap with blockchain technology and um work in that space and they were saying that yeah smart contracts are a form of whatever like technical then GDPR things and then under line they are they used the definition from the data act which was kind of a moment in which we were like yeah we told you that this would happen. So fast forward, we have this

here as the definition which basically I'm not even going to read it because it's not something that I um want you to remember but just the thing is that it should not be defined as that and there >> maybe just uh for me to add something. So I think this part was like very important what we are mentioned because since we had the first definition of a smart contract within the data act the fear really was that the definition and now also the design features you will see that Vara will explain about >> would not be limited to the data act but would be basically looked into or taken to other potential regulations in the

future if there would be something that would be let's say a D5 regulation, we think that there's a highly likelihood that this definition of a smart contract could be taken from the data and the design features as well. So it's basically a contagion that could happen even if right for right now it is aimed at a very very specific use case which is for data stream through IoT devices through a smart contract that is not even designed inhouse but it's sold to someone that is using it in this way. So like it's a really really like limited use case but again the danger is that it could go into the other potential regulations and that is why it is important for DeFi uh right now and for

the discussion that we are having and as VR mentioned that is where basically the GDPR uh opinion was already mentioning and referencing the data act when they were talking about the compliance with GDPR uh when it comes to blockchain. So thank you. Yes. And also going into the details, there wasn't just a definition that in that act there were also this essential requirements regarding smart contracts for executing data sharing agreements which on its own shouldn't be used I would say because that's already over complicating a term that is so complicated that there isn't a unified agreement of what it even means. So smart contracts we don't know what that is which is visible from the data act

and then we have smart contracts for executing data sharing agreements. So yeah um and here in this article 36 back in the days it was article 30. So if you ever end up looking for our positions for back for those days you'll see them uh our comments as under comment commenting article 30. But those were if you read them and keep in mind what we do as an industry and what we call smart contracts you'll see how those cannot exist in this context. So there you you you probably able to see it but basically uh those requirements uh include robustness and access control which you should not actually have that

would actually go straight against the whole security concept of smart contracts. safe termination and interruption. Again, not something that we got by design and not something that we necessarily want to have or can't have already for the already existing smart contracts. And this is as you can see absolutely irrelevant for like blockchain based smart contracts. Data archiving this somewhat can work continuity eraser not a chance and so forth. So access control which is among I would say probably the most important and worrisome one being here something that you definitely don't want to have like as a back door to a to a smart

contract and consistency and sure and all of those things that might in some cases actually work but those were not especially if if we combine this with what Marina described with what we tal about already um if you combine this with the logic that this would spread like a virus and then All those rules about how you build a compliant smart merit contract also spread like a virus. This was not a great thing just to say it softly. I don't know if you want to add anything.

>> Yes. So the basically the risks that Viara mentioned are really the ones that are I would say affecting mostly the security of a smart contract could be affecting the security. Something that was in a way written by design by the law. So the law is requiring that specific design of the day uh of the smart contract. It is putting the smart car on a very high risk when it comes to security. And of course this regulation is not aimed at thinking about the security aspect is aimed of thinking about interoperability because that was the goal of the data act making technologies interoperable. That's why they have thought about smart contract and the design in this way. But it's

also showing where it is very very important to think about the consequences when we regulate a technology that is new that is not yet regulated if we don't look it from a security point of view as well and so here um I would say that this is really our criticism like it's not taking into consideration the security aspects the back doors that basically should be implemented by design are something that you know we are not in a way comfortable with we didn't know what are the details of how the design should be and the back door should be granted. There was like no details on how this would be put in practice and that was really the the problem until now when the data act is

applicable. So the data act is applicable right now since 12th of September that means that anyone that is falling under this scope should be compliant. We do not have details on all those execution elements that we mentioned basically mostly also about the fact that the smart contract is not supposed to be immutable should be mutable and again we don't know what and how are the details again access control we don't know which in which cases the access control should be granted it was really just an article in a very wrong uh regulation and so what is a good news. So you we really are finalizing this presentation with good news is that after working on

this topic for a lot about four years that's the time frame within which regulations usually in the EU are starting and finalized and then being applicable. As I mentioned we have a new commission and the commission under the drugy report is reviewing some of the regulations that we have currently in the EU. They're reviewing regulations and thinking about should we align some of them? Should we basically maybe you know um rethink some of them and should there be some type of uh maybe you know limitation of the compliance burden that all the companies have and within which we have this like digital omnibus that we are basically just discovering right

now and as I mentioned it was published yesterday so the 19th of November and in that part we do know that something similar to abolishing this article to the data act is being published and proposed by the commission. So there's a whole process in the EU that takes a longer time but it usually always starts with a proposal from the commission and the proposal uh which you know we have now and can read about is saying that that part that is regulating smart contract is not needed. they proposed it to be deleted and basically the arguments are very very similar to the arguments that we have used in the past in our uh basically position papers and

I will read this part because it is uh I think quite important it is also very much of a big win and recognition of our work that we have done in the past and it's also something that is important to take into consideration where when it comes to policy in crypto it's not only important to think about the centralized entities and how they will comply with some of the provisions of Mika. But we do have like a whole framework in the EU that I think is very specific to the EU which is the data framework that is also affecting the crypto um industry specifically on a technical side. So if someone is thinking about DeFi onchain uh basically activities, I think the the

technical side is very very important and this is where we need to look into the data regulation besides all the others that you know globally uh similar I would say policy organizations are doing the security aspect the one on a financial uh regulation uh others as well like taxes but here we have the data one so I'll read that that is also uh you know the last slide for from us today. So if you have any questions after that we're happy to debate. uh but this part that I mentioned was saying the absence of harmonized standards and clear definitions for key concepts such as robustness, access control and consistency with contractual terms

combined with the requirement for a safe termination or interruption mechanism potentially in is potentially incompatible with the central decentralized or public blockchain architecture built on immutable ledger and it could pose challenges to innovators from a cost and opportunity perspective. So again, one of the rare times when even the term public or decentralized blockchains are used. We do not have a legal term for that in Europe and that is the first time that in a way was in something that that they mentioned. It is something that of course we will support and work on in the next few years because that is again as I mentioned just the first proposal.

it just starts being debated within the parliament, the commission, uh the the council and and other institutions. Uh but again, it is a testament to uh something that also the commission in the EU I would say looks uh into which is really understanding how the technical aspects work and trying to do the best when it comes to regulating that. So um just to summarize today we covered three main topics when it comes to DeFi in the EU. The first one was stable coins. We thought about also decentralized stable coins and the type of stable coins at a future regulation potential changes of stable coins. The second one was DeFi in terms of service providers could be dexes, could be

lending uh platforms and and others uh in again a very specific cases and few of the papers and thoughts around that. And the third one was around data which is >> specifically the data act regulating smart contracts. So I do assume there's going to be quite a lot of debate on those topics in the next years in the EU. We'll keep you posted if you follow our social media and our website is eu.ci and I will just ask Vara for the last comments if you want to add anything. We have a few other minutes.

>> Yes. Um, what I love about the EU, uh, which is somewhat ironic because it's also what keeps me at night, um, is that there are so many legal frameworks that have good intentions, but also have been overlapping quite a lot. So we showcased a part of things that currently touch upon defi, regulate defy, but also defy is uh something that we need to also perceived through all those other legal frameworks including the GDPR, including cyber security frameworks that are also operationalized in Europe. So this is I would say just a selection of topics for

you to think about and to be uh even aware of and then of course there are quite a lot of other things that we are also covering. Um so that hopefully you will be well rested not just having interrupted sleep because of the EU regulations and would be able to build what you're building. and thank you for being here and I hope you enjoy the rest of the event. >> Thank you.