Will 2022 go down in history as the year that marked the “beginning of the end” of cryptocurrencies and decentralized finance (known as DEFI)?
Indeed, their very dynamic and creative development has had as a corollary an increase in risks and losses for their players and customers, some of which materialized in spectacular fashion, with the collapse of the third largest “stablecoin” system (obviously misnamed) , Earth-Moon, the bankruptcy of FTX, one of the largest cryptocurrency exchanges in the world, and the reorganization of other players in their ecosystem, including liquidity providers such as Genesis or BlockFi, have been accompanied by a reduction by almost 70%. in the capitalization of all cryptocurrencies, which returned to its level in early 2021.
While these violent tremors probably haven’t yet produced their full ripple effects, they are already rich in lessons.
An important lesson concerns the general principles of organization and resources, particularly in terms of governance, internal control, protection of client assets, separation of activities and prevention of conflicts of interest with related parties, accounting, transparency… which apply to the actors traditional financial assets, given the risks inherent in financial activities. So far, the scope of these principles has been very limited, their content undemanding and uneven from one jurisdiction to another for players in the world of crypto assets, on the grounds that one should not unduly curb the diffusion of the innovations they bring .
The difficulties encountered by some players, the effects of contagion regardless of borders, the losses and thefts suffered by their customers, now make it necessary to reconsider this policy and rapidly evolve at a national, European and international level towards broader regulatory requirements. solid and more harmonized, in line with the joint recommendations of the G20 and the FSB on consumer protection, financial stability and the fight against money laundering. At the Banque de France and the ACPR, based on our experience as supervisors of traditional financial players and the financial system as a whole, we are convinced that the world of cryptocurrencies and decentralized finance will only grow in new, useful and sustainable only with an adequate regulatory framework, vector of trust. Its goal should be to allow all contestants to be placed on an equal footing, without suffering the harmful consequences of “rogue” actors, as has been the case up to now. It should also aim to strike the right balance between the objectives of protecting customers and maintaining financial stability on the one hand and operational realities on the other.
Europe has been a pioneer in this process, defining a new regulatory framework, called MICA (Markets in crypto asset regulation), which should come into force in the first quarter of 2023, and be applied at the end of the first half of 2024. In this perspective, the implementation in France, rather than mere registration, mandatory approval of PSANs (digital asset service providers) is desirable before MICA comes into effect, which is currently under discussion. It should facilitate and accelerate the adaptation of actors, established or settling in France, to a regulatory environment that will allow them to evolve in a framework of trust for all on the road to innovation.