Currently, trialogue for the Markets in Crypto Assets (MiCA) and Transfer of Funds (TFR) regulations is underway in the European Commission, the European Parliament and the Council of Ministers, which will be concluded in a few weeks.
If adopted, the TFR would, according to experts, impose a vast financial surveillance regime on the European decentralized finance (DeFi), nonfungible token (NFT) and metaverse spaces. This could then lead to companies in those sectors moving elsewhere to avoid regulation.
The German DeFi community has not remained silent and has written an open letter to EU decision-makers, which supporters can sign. One of the many initiators is Peter Grosskopf from Unstoppable Finance, who was also a co-founder of Solarisbank in 2017. Before founding his own DeFi project together with Maximilian von Wallenberg and Omid Aladini last year, Grosskopf worked as chief technology officer at the Stuttgart Digital Exchange.
Cointelegraph auf Deutsch spoke to Peter Grosskopf about how DeFi fascinates him, what he thinks of the planned TFR regulations and how the DeFi community in Germany is feeling right now.
“Almost everything that we do today with a bank, we can also do ourselves with DeFi applications,” Grosskopf told Cointelegraph, adding, “A whole modern and global infrastructure is emerging that is not only operable in Europe, North America or Asia, but worldwide.”
DeFi tokens have certain interoperability, such as allowing different systems to work together “and, thus, the new global financial system functions in a uniform and decentralized manner.” The traditional financial world will never be able to do that, Grosskopf believes.
Regulators don’t understand DeFi
But, not everyone is so excited about DeFi as Grosskopf. “The European DeFi market has problems at the political level and a lack of understanding,” he stated. As a result, the European Union Parliament voted on the TFR, which, according to Grosskopf, is unfair because crypto gets stricter rules than the traditional financial industry:
“Politicians are representatives of the people, they are elected by people to represent our wishes, interests and opinions. But, DeFi has virtually no lobby and that’s why hardly anyone has talked to politicians about how DeFi is moving and what benefits decentralized financial systems can bring. But, now let’s put an end to this. The DeFi players, creators and protocol developers from Europe have to become more active and show themselves.”
If regulators better understood the benefits of DeFi through fully transparent documentation of transactions that are publicly retrievable and can be statically inspected and audited, they would think differently, Grosskopf said.
One example of the benefits of blockchain, Grosskopf noted, is that of a digital identity, which represents a person or organization in the digital space. He said that a form of digital identity could be stored in an unhosted wallet, and whenever the user then has to prove his identity in a digital process, he could authenticate himself securely with the derived data. “But, here you need an actor to check whether this identity has been created and whether it is legitimate,” Grosskopf said:
“And, in my eyes, there is a need for such solutions: To respond to regulatory requirements with technology and, if possible, to define our DeFi industry standards ourselves.”
He further noted that there are issues that need to be worked on such as usability 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.
Finding a voice
At first, after two key EU Parliament committees voted for TFR, the DeFi community was very disappointed with the vote results. But, now, “there is a productive mood that we want to convince everyone of the opportunities DeFi offers.”
“But, to be honest, the DeFi space is very new and hardly represented in blockchain associations. That’s why we will try to make ourselves heard.”
Grosskopf has called himself a crypto realist for years because he knows both the old and the new world well with his history at Solarisbank. Grosskopf believes that regulation overall is getting stricter and stricter. “And, it’s not just happening in the crypto space. As a crypto realist, I think we need to be proactive as a community and produce our own solutions before we have them imposed by someone from the outside.”
“They want to protect us but they are doing exactly the opposite”
In the traditional financial world, not every transaction is reported to the government, but only if a transaction seems suspicious. In the crypto world, the current version of the TFR would oblige banks and payment companies to store information about every transaction that exceeds the threshold of 1,000 euros, even if it’s for something as every-day and innocuous as an Apple laptop. In Grosskopf’s point of view, this constitutes an invasion of privacy:
“Buying a laptop is nothing criminal or suspicious. But, the mere fact that every purchase of an object or service worth more than 1,000 euros is listed somewhere along with my name, all my contact details and my registration address, I find absurd. This data can fall into the hands of anyone, a hacker or any criminals, then they can analyze what you own and what your address is.”
From a data protection perspective, Grosskopf thinks that the TFR is nonsensical. “It also does nothing to prevent money laundering. They want to protect us with it, but they are doing exactly the opposite.”
Web3 companies could move outside the EU
According to Grosskopf, the TFR, if adopted, will inhibit European projects from developing and, therefore, less capital will flow into the Continental DeFi market. This will lead to less growth in the DeFi sector and will make Europe less attractive as a market:
“I see only negative effects: Clients will increasingly go to foreign providers, which will have devastating consequences for the competitiveness of European service providers. After all, it plays a big role where new companies are established and where they are actually located.”
Switzerland is the most obvious destination for DeFi startups, but under certain circumstances, more companies will be established outside Europe, said Grosskopf. Then, European policy will achieve the exact opposite: The DeFi market will then be outside the sphere of influence of European policy, which would only bring “negative consequences for the goal of combating money laundering.”
This is a short version of the interview with Peter Grosskopf. You can find the full version here (in German).