DeFi Archives

Regulations Unmasked: Decoding Banks and Laws in the Crypto Realm

July 29, 2023July 20, 2023 by European Blockchain Convention

This panel about crypto regulations was moderated by Jose Luis Perán, Head of Delivery for financial services at VASS. Coty de Monteverde, Blockchain Center of Excellence Director at Banco Santander, Francisco Maroto, Blockchain Lead at BBVA, and María Ñiguez Olalla, IT Lawyer at EJASO, provided valuable insights from the perspectives of banks and law.

Regulations Are Coming

Francisco compared the upcoming regulatory changes in the crypto market to the regulatory wave that occurred in the financial industry after the 2008 crisis. He believed that the crypto industry must prepare and invest to comply with the upcoming regulations.

All speakers highlighted the need for regulations in the crypto market to attract institutional money and protect retail customers from fraud and bankruptcy. Different countries are approaching crypto regulation at different speeds and in different directions, with some like Singapore and Switzerland already having regulations in place and others like China forbidding the use of cryptocurrencies.

The European Union’s regulations, such as the Markets in Crypto-Assets (MiCA) regulation and Digital Operational Resilience Act (DORA), aim to provide legal certainty, protect consumers, prevent market manipulation and financial crime, and professionalize the crypto sector.

Healthy markets need liquidity, protection and security. This is mainly brought by two factors: institutional money and regulation.
Francisco Maroto, Blockchain Lead at BBVA

Law and banking experts discussed how crypto regulations are reshaping the banking industry.

MiCA’s Impact on the Crypto Industry and Banks

According to Maria, MiCA regulations introduce compliance regimes for issuers of crypto assets. Different types of investments have different levels of risk and requirements. Issuers of e-money tokens (EMTs) face the strictest regime, while asset reference tokens (ARTs) require authorization and whitepaper approval. Other crypto assets are considered to pose lower risks, and while the issuers still need to present a specific substantive whitepaper, they don’t need the approval of the supervision.

On the other hand, crypto service providers, such as exchanges and custodial wallets, need to obtain a MiCA license and comply with governance and transparency obligations. Specific obligations depend on the type of service provided, such as having a custody policy for custodial wallets.

Maria believed that MiCA regulations can protect the customer and at the same time, give certainty for the institutions that want to start providing crypto services.

Coty, from the bank’s point of view, shared that MiCA regulations will impact the financial sector and crypto asset service providers. Banks must adapt and seize opportunities, while service providers will face challenges, including risk management, capital requirements, and compliance procedures. Therefore, collaboration between banks and service providers will be necessary.

“Regulation is key for market development!” Watch the EBC interview highlight with Esther Teuber to understand how regulations will change the crypto industry from a law perspective.

More EBC insights on MiCA and crypto:

EBC aims to bring together TradFi experts, crypto startups, and law professionals to discuss the future of finance!

Other Relevant Regulations for Banks and Crypto

Apart from MiCA, there are three additional regulations that influence banks in the crypto space. The travel rule, which requires all financial institutions to pass on certain information to the next financial institution, has expanded to crypto asset service providers, requiring them to identify transaction sources and destinations for anti-money laundering reasons.

Another regulation is the Prudential treatment of crypto assets, which establishes standards to classify and manage assets, ensuring financial stability and setting appropriate capital levels.

The third relevant regulation, according to Coty, is the Pilot Regime. It is similar to a European sandbox that provides a safe environment for financial market infrastructures to test DLT applications, particularly in trading and settlement systems, for a duration of six years.

The panelist agreed that regulations will bring a positive impact on the crypto space, as they will provide more confidence to institutional players, protect the market with legal certainty, and offer protection to retail customers.

Watch the full panel to understand the coming regulations in the banking realm!

Is Web3 Privacy a Myth? Discover the Truth and Protect Yourself

July 18, 2023 by SzuTung Chen

Coming from a professional background in computer science and security, Marta Piekarska, Director of DAO and Web3 Strategy at ConsenSys host a fireside chat with Nanak Nihal Khalsa, Co-Founder of Holonym Foundation, to discuss the current state of privacy in Web3 and how individuals can protect their privacy in the crypto space.

Nanak emphasizes the need for privacy protection, even though individuals may initially think they have nothing to hide. He highlights the risks associated with freely giving away personal data and the potential for abuse and breaches.

He explains that while Web3 is often associated with enhanced privacy, it primarily offers pseudonymity rather than anonymity. There is also a dilemma for individual users to balance privacy and government support. He highlights the potential of zero-knowledge technology to introduce new privacy primitives and enable private transactions while still complying with regulations.

Experts of privacy and security shared how users can protect themselves in Web3.

According to Nanak, the movement advocating better privacy adoption in Web3 still appears mainly decentralized and lacks a cohesive push. Holonym Foundation has also been working with Lobby3DAO, a Web3 community aiming to provide people with voices in public policy in the United States, to explore confluences with government, regulations, and lobbying.

To protect their privacy, EBC speakers suggest users be cautious about logging in to websites with their wallets, as this can potentially expose their wallet addresses and transaction history. Taking steps to secure personal information and utilizing privacy-enhancing tools are crucial for safeguarding privacy in Web3.

More EBC insights on trust and privacy:

Watch the full panel to learn from EBC experts about privacy in Web3!

Custody, Wallets & Exchanges: Keeping Your Crypto Safe

July 13, 2023 by SzuTung Chen

A very enlightening discussion took place during the 8th European Blockchain Convention with Maria Apogeni, CEO of BITMarkets, Serra Wei, Founder & CEO of Aegis Custody, and Clarisse Hagège, Founder & CEO of DFNS to discuss wallets, exchanges, and custody.

Not Your Keys, Not Your Crypto

Clarisse believes that owning your private keys is important for crypto ownership, but contrary to what people think, she argues that physical ownership is not necessary to keep assets secure.

In her opinion, key management is difficult and can easily lead to loss of funds, not to mention that many users still record their private keys on cloud service after purchasing a hardware device. With the advancement of technology, Clarisse envisions decentralized custody with a focus on recoverable proof of user signing power.

The audience listening to the panel discussing custody and wallets at EBC23.

Segregation of Funds Is Important

Serra points out that qualified custodians in the United States now have to demonstrate that they hold private keys to customer funds while proving customers’ funds are segregated. Clarisse thinks that centralized exchanges were a response to the difficulty of interacting with blockchain technology, but technological advancements, such as multi-party computation (MPC), can help rebuild trust and increase security. She suggests that segregated wallet infrastructure is crucial to guarantee the safety of user funds in case of bankruptcy.

The panelists discuss the importance of custody, wallets, and exchanges at EBC23.

The Future of the Crypto Space

Serra thinks that the collapse of FTX highlights the need for better risk management and infrastructure in the crypto space. Companies are now focusing on differentiating themselves by providing institutional-level solutions and complying with regulations. In the long run, this will set a new standard for sustainability and growth in the industry.

Clarisse expresses optimism in the future of the crypto space despite the fact that the institutional U.S. market is currently facing regulatory uncertainty. She believes that decentralized finance (DeFi) will come up with new solutions to deal with the situation.

More EBC insights on crypto, regulations, and privacy:

Watch the full panel to learn how to keep your crypto wallet safe!

The Future of Crypto Tax and Web3 Infrastructure

July 11, 2023 by SzuTung Chen

This infrastructure panel was moderated by Oskars Jepsis, CEO & Co-Founder of ALTER Network. Berken Menges, Head of Marketing of CoinTracking, and Antoine Scalia, Founder and CEO of Cryptio, contributed to the discussion, providing insights from B2B and B2C perspectives.

What Are the Current Tax Regimes in the Crypto Space?

Antoine believes that the current tax regimes in the crypto space are generally clear for trading, capital gains, and swap tradings, but there are still complexity and uncertainty in new use cases such as staking and rewards on lending protocols.

After the FTX collapse in 2022, some media is claiming that the auditing firms stop doing audits for crypto clients, but Antoine disagrees. He mentions that many companies pause Proof of Reserve until they find better ways to do it, but they are still conducting financial statement audits.

Berken shares that even though the tax regulations are relatively complete in Germany, the public is still hesitant to invest in cryptos. His company has been actively communicating with policymakers and educating the public to increase people’s trust. He also believes that making the infrastructure more user-friendly and automated will be crucial in helping the public adopt digital assets.

Oskars, Berken, and Antoine discussed infrastructure and regulations at EBC23.

What Are the Challenges for Enterprises and Retail?

Berken identifies several challenges from the B2C side. Since different transactions belong to different types of taxation, aggregating and classifying all the data is the hardest part. It requires distinct methods to obtain data from centralized exchanges and decentralized finance (DeFi) platforms. Also, Berken acknowledges the importance to keep up with new blockchains and trends while prioritizing.

Complementing Berken’s point, Antoine thinks that the B2B side also faces challenges with coverage and integration with exchanges. It takes lots of time to collect accurate and complete data in an auditable way. Since the existing data analyzing tools, such as EtherScan, aren’t designed to be used for accounting purposes, there are missing features and a lack of consistency.

Antoine points out that, for conducting both Proof of Reserve and financial statement audits, there is an obvious lack of adequate tools. While auditors are normally not familiar with the latest technology, he thinks there are many market opportunities for companies providing tools and infrastructure to ease up the process.

Check out some key metrics and tools for investing in crypto assets!

Berken shared his insights on crypto audits, regulations, and institutions at EBC23.

What Is the Future of Web3 Infrastructure?

Antoine argues that the emergence of new use cases is too rapid for regulations to catch up. It’s thus important for enterprises to collaborate with experts in the field to navigate the evolving tax landscape. He emphasizes the need for reliable data infrastructure that can provide clear and easily understandable data for new use cases, in order to rebuild trust in the blockchain systems.

Berken thinks it’s challenging to understand and comply with different tax requirements in different countries. The process of evaluating tax reports and interpreting regulations can be time-consuming and complicated, especially with new use cases. However, he believes that once there is a clearer path and more clarity in tax regulations, it may ease up the challenges for institutional adoption.

Watch the full EBC panel to navigate crypto tax and Web3 infrastructure!

From Trust to Adoption: Building the Infrastructure for Institutions

July 6, 2023 by SzuTung Chen

Building Infrastructure for Institutional Crypto Adoption

BlackRock’s Bitcoin ETF launch and the participation of Charles Schwab, Fidelity, and Citadel Securities in EDX Markets have sparked investor interest. Enhancing institutional adoption and establishing trust require discussing infrastructure improvements for traditional finance players entering the crypto market.

This essential panel is moderated by Madeleine Boys, Head of Community at GBBC, who leads the discussion with Vincent Dulhoste, CTO of Kaiko, Glib Udovychenko, Founder and CEO of Whitepay, David Engel, Head of Business Development at StarkWare, and Rajiv Sainani, Head of European Business Development at MakerDAO.

Key Infrastructure Components To Scale the Institutional Adoption of Crypto

David emphasizes the need for regulatory clarity and the necessary technical infrastructure, including wallets, protocols, and liquidity. Rajiv echoes David, highlighting the importance of bridging the gap between on-chain and off-chain and improving the efficiency on and off-ramps.

In order to create a seamless off-chain experience, Vincent emphasizes the importance of interoperability and composability in DeFi to provide a better experience for institutional adoption.

Personal Experiences of Interacting With Institutions

Glib shares that during the war in Ukraine, Whitepay implemented crypto processing for President Zelenskyy’s website to collect over 12 million in crypto for funding. This experience led the team to work on similar crypto projects with other EU governments and develop projects related to state services that can be paid for with crypto. His experience demonstrates that governmental institutions can benefit from private companies integrating services to help with urgent needs.

From MakerDAO’s experience, Rajiv highlights three waves of institutional use cases for real-world assets in DeFi. The first wave involved working with young innovative companies. The second wave saw regulated financial entities, such as the U.S Commercial Bank, experimenting with DeF. The third wave involved deploying capital from on-chain protocols into the off-chain world. Rajiv also notes the importance of legal frameworks, the need to build more products natively on-chain, and the challenges of bridging traditional finance (TradFi) and DeFi.

DeFi + TradFi Alliance Case Study: MakerDAO + Societe Generale-FORGE!

Representing Starkware, David shares their experience with Visa. Visa built a proof of concept using account abstraction on StarkNet to turn a dumb wallet into a smart wallet, allowing for recurring payments. The innovation in wallet infrastructure and building web 2.0-like wallets is important for onboarding users and giving enterprises the tools to deliver better user experiences.

Vincent shares Kaiko’s experience with financial institutions on both the buy and sell sides. The company provides benchmarks and prices for investable products, supporting the investment life cycle, tokenizing real assets, and working with regulators to provide reliable data for market surveillance.

The panelists discussed how to build infrastructure for institutional crypto adoption at EBC23.

Challenges to Bridge TradFi with Web3 Infrastructure?

Rajiv identifies two main challenges: the lack of understanding of on-chain paradigms by large institutions, particularly in legal and compliance departments, and the trust issues in the industry due to the challenging conditions in 2022. As many institutions start to explore Web3, Rajiv thinks that conducting institutional finance on a public blockchain is probably one of the biggest barriers in terms of the effects of privacy and confidentiality.

David also points out two possible challenges for building blockchain solutions for institutional finance: the difficult business model due to smaller volumes and regulatory/legal challenges, and the challenge of creating a real business case for selling to institutional finance.

He thinks that replacing existing institutional infrastructure with blockchain will be slow and selective because it’s really challenging to disrupt a robust and strong system. He believes that it’s important for the industry to identify specific areas where blockchain can make a difference, such as B2B payments.

Vincent thinks education is essential to mitigate institutions’ concerns to move into Web3. He thinks it’s critical to let them understand that it’s possible to deliver secure services on blockchain. The reliability, security, and scalability of blockchain technology should be educated to build trust.

More EBC insight on institutional crypto adoption:

Watch the full panel to learn how institutions embrace crypto through infrastructure innovation!