An anarchistic image is part of the charm of the crypto world.

Anarchy as the absence of domination or power, a self-regulating system that does not require domination and therefore no regulation determined by an institution.

It became clear at the Crypto Assets Conference at the Frankfurt School of Finance & Management that things are not quite so far away in practice, especially for the decentralized financial system (DEFI), which has recently been the focus of attention.

Martin Hock

Editor in Business.

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"DEFI is not decentralized," Magnus Jones from legal advice EY began his presentation with a strong statement - nor is anything else decentralized that has a "De" in its name.

Governments think differently.

"Just because you say you're a banana doesn't make you one," Jones quoted Kenneth Blanco, director of the US Treasury Department's Financial Crimes Enforcement Network.

Governments were looking for responsible people.

In the end, this could be developers, the holders of a token on which a network is based, a foundation that stands behind it or even the users.

There will be no anonymous system

As long as someone earns money with it, has an interest in it or provides the ecosystem, the regulator will find someone to subject to the regulations, said Timo Bernau from the law firm GSK Stockmann with a view to Germany.

Relevant international supervisory authorities have already made it clear that, in their view, decentralized systems are usually covertly centralized, says Jones.

The belief that an anonymous (or pseudonymous) DEFI can last is simply a mistake, because everything is transparent to governments.

EY forecasts that regulation will be in place by 2023 at the latest.

One of the basic problems of the existing regulation in Germany, however, is that it partially ignores the nature of the DEFI, especially in the lending business, for example because it defines money in the sense of conventional, so-called "fiat money" or because no change of ownership is involved, says Bernau .

He believes that it is illusory to believe that decentralization will be enough to avoid regulation – even if the EU MICA regulation exempts completely decentralized systems.

Currently, no system simply meets the requirements.

Even if it were, there should not be any significant risk for investors to avoid being subject to investor protection regulations.

Banks are still struggling

The regulation is often welcomed with hope by companies in the crypto and DEFI industry.

"Regulation is the key to adoption," says Michael Duttlinger, founder of Cashlink, praising the German law on electronic securities.

Such progressive regulation opens up new capital markets.

Germany is the first major economy to regulate tokenization.

The introduction of the crypto custody license in 2020 has made crypto assets acceptable for institutional investors, says Ulli Spankowski, Digital Director at Boerse Stuttgart.

In the banking industry, people are becoming increasingly warm to the crypto world.

In view of the rapid development, one increasingly builds on partnerships.

It's not enough for an exchange to offer just one trading opportunity, says Spankowski, you need a wider range of services.

Partnerships are the means of choice and banks are relevant partners, especially with regard to banking licenses.

However, the rapid, decentralized development also has its downsides for the banks.

Not only is it difficult to keep up with developments, but above all there is still a lack of a comprehensive solution for the capital markets.

From the point of view of the customers, who want a service of the usual standard and for whom the technology is largely irrelevant, this is an obstacle.

Before you can process all financial services via the blockchain, you first have to find the way there.

Vertical integration is missing, but also simple industry standards, precisely because of the openness of blockchain technology.

Without this, however, all the advertised (cost) advantages would ultimately be lost because too many parties would be involved in a service.

Good environment in Germany

So one hopes again for a harmonized EU regulation.

However, because at the same time there is a fear of falling behind, as with the DEFI, one is forced to start somewhere.

Securities would offer themselves as a familiar environment.

According to German industry participants, the German regulatory environment is great for securities.

The problem is that Germany otherwise plays a subordinate role in the crypto scene, especially in the area of ​​crypto money, is countered.

But actually the problem is that the banks lack conviction, says Simon Seiter from Bank Hauck Aufhäuser Lampe, one of the pioneers in this area: “We are not bullish enough.

We could do all of that: digital securities, connected to a stablecoin, with which we would do it all on the blockchain.”

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