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European Lawmakers to Review Smart Contract Laws that Threaten to Kill DeFi

Three top European regulators will get together to discuss the implications of the Data Act and provide more clarity with the goal of not stifling DeFi innovation.

As Europe embarks on its journey to bring clear crypto regulations in place, the blockchain industry is making a final push in preventing laws that would crush the smart contracts underpinning the decentralized finance (DeFi) protocols.

The lawmakers are currently having negotiations over the Data Act, which will be concluded by the end of June. This Data Act seeks to regulate data shared across smart devices using IoT networks. However, the text of the Data Act has an article dedicated to regulating the smart contracts underpinning the DeFi sector.

Advocates of crypto such as the European Crypto Initiative asked policymakers to consider the spillover of such an act to other blockchain developers. The crypto proponents argue that this spillover could kill the use of DeFi in the bloc. Speaking to DL News, Marina Markezic, executive director of the European Crypto Initiative said:

“The worst-case scenario is whether we would even be able to use public blockchains for using smart contracts while complying with the Data Act requirements.”

Europe shouldn’t “shoot itself in the foot by inadvertently damaging innovation and technological development in the broader blockchain industry”, wrote the trading association.

EU Gives Mixed Signals

One of the sources closer to the negotiations noted that several European institutions considered promoting the use of smart contracts through the Data Act, instead of regulating the ledger technology. The sources said that the regulators will address the industry concerns during their negotiations in the coming weeks.

However, a spokesperson for the European Commission stated that the controversial article on smart contracts regulation takes a neutral stand on technology. “It sets high-level requirements for smart contracts, whether or not they are based on blockchain technology or a more traditional database,” the spokesperson said.

To decide the final outcome of the legislative process, the three European institutions that lead the negotiations have reached their own stance on the Data Act. Back on March 14, 2023, the European Parliament passed a vote on its adoption. Now, along with the European Commission and the European Council, regulators need to reach a final agreement.

In a meeting ahead this month on May 23, the three players will aim to solve the outlying issues with the Data Act text. Another meeting shall happen by the end of June next month. Markezic said this is the “biggest organized effort so far”, and the group hopes that “any future plans for data sharing will take into consideration the inherently different nature of smart contracts”.

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Bhushan Akolkar

Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.

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