“DeFi has no lobby in Europe,” says Unstoppable Finance co-founder

A trilog on cryptocurrency markets (MiCA) and funds transfer regulations (TFR) is currently underway at the European Commission, European Parliament and Council of Ministers and will be completed in a few weeks. Experts say that if adopted, the TFR will impose a broad financial oversight regime for European decentralized finance (DeFi), non-fungible tokens (NFT) and meta-universes. This could result in companies in this sector moving elsewhere to avoid regulation.

The German DeFi community has not stood still and has written an open letter to EU decision makers that its supporters can sign. One of the initiators was Peter Groskopf of Unstoppable Finance, who also co-founded Solarisbank in 2017. Prior to launching his own DeFi project with Maximilian von Wallenberg and Omid Aladini last year, Groskopf worked as Chief Technology Officer at the Stuttgart Digital Exchange.

Peter Groskopf spoke about how he was fascinated by DeFi, what he thought of the planned TFR regulations and how the DeFi community in Germany is feeling at the moment. “Almost everything we do with banks today, we can do ourselves with DeFi apps,” Grosskopf said, adding, “There is a whole modern and global infrastructure that works not only in Europe, North America or Asia, but around the world. .” DeFi tokens have a degree of interoperability, for example by enabling different systems to work together, “thus enabling the new global financial system to function in a unified and decentralized manner.” The world of traditional finance could never do that, Grosskopf said.

Regulators don’t understand DeFi

But not everyone is as enthusiastic about DeFi as Grosskopf. “The European DeFi market has political level issues and a lack of understanding,” he said. As a result, the European Parliament voted for the TFR, which Grosskopf called unfair because crypto accepts stricter rules than the traditional financial industry:

“Politicians are representatives of the people, they are elected by the people to represent our wishes, interests and opinions. But DeFi has virtually no lobby, so hardly anyone talks to politicians about how DeFi is moving and what benefits a decentralized financial system can bring. But now we will end it. DeFi players, protocol builders and developers from Europe need to be more active and show off.” If regulators better understood the benefits of DeFi through fully transparent transaction documentation that could be publicly retrieved and statically inspected and audited, they would think differently, Grosskopf said.

According to Groskopf, an example of the advantages of blockchain is the digital identity that represents a person or organization in the digital space. He said forms of digital identity can be stored in non-hosted wallets and if users need to prove their identity in a digital process, they can be authentically verified using the extracted data. “But here you need actors who check whether these identities are created and are valid,” Großkopf said. “And I think we need such a solution: to meet regulatory requirements with technology and, if possible, to define our own DeFi industry standards.”

He also revealed that there are several issues that need to be addressed, such as: Ease of use or consumer protection, and that the DeFi community needs to start talking to regulators and politicians and convince them that DeFi is transparent and therefore less vulnerable to political or corporate influence and corruption.

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After the two main committees of the European Parliament voted in favor of the TFR, the DeFi community was initially very disappointed with the results of the vote. But now, “there’s a productive atmosphere in which we want to reassure everyone about the opportunities that DeFi has to offer.” “But to be honest, the DeFi space is very new and barely represented in blockchain associations. So, we will try to be heard.”

Grosskopf has been referred to as a crypto realist for many years because he knows the old world and the new world well with his history at Solarisbank. Grosskopf believes that overall regulation is becoming increasingly stringent. “And this is not only happening in the crypto space. As a crypto realist, I think we should be proactive as a community and create our own solutions before implementing them from outside.

“They wanted to protect us, but they did the opposite.”

In traditional finance, not every transaction is reported to the government, only if the transaction appears suspicious. In the crypto world, the current version of TFR requires banks and payment companies to retain information on every transaction that crosses the $1,000 threshold, even if it’s something as mundane and harmless as an Apple laptop. From Grosskopf’s point of view, this is an invasion of privacy:

“Buying a laptop is neither criminal nor suspicious. But I find it absurd that every purchase of goods or services worth more than 1,000 euros is listed somewhere with my name, all my contact details and my registered address. This data could get into someone else’s hands. from anyone, be it hackers or criminals, allowing them to analyze what you own and what your address is.

From a data protection point of view, Grosskopf considers TFR to be meaningless. “Nor did he do anything to prevent money laundering. They wanted to protect us with that, but they did the opposite.”

Web3 companies can move outside the EU

According to Grosskopf, if TFR is adopted, it will hinder the development of European projects and therefore, less capital will flow into the continental DeFi market. This will lead to lower growth in the DeFi sector and make Europe less attractive as a market: “I only see a negative effect: More and more customers will go to foreign providers, which will have negative consequences for the competitiveness of European service providers. After all, it plays a major role in where new companies are founded and where they actually stand.”