As the world races towards a crypto-powered future, the question looms: Will the US risk being left behind? The answer is probably "yes." And that's becoming obvious.

However, what many people don't know is that the stage is being set DeFi to score big wins as crypto regulations become clearer. 

So where do we stand?

TLDR 📃 

• The UK is taking the lead in embracing (DeFi) by outlining new recommendations for regulating crypto assets.
• The UK's proposals could legitimise most DeFi applications, allowing for using crypto as collateral and confirming on-chain transactions as valid business transactions.
• France is also trying to regulate DeFi but leans more toward controlling it rather than fostering innovation.
• Central banks may explore using Curve Finance for on-chain liquidity pools to replace current foreign exchange (FX) trading practices.
• While these developments are still exploratory and not yet signed into law, the future of DeFi appears promising.

Disclaimer: Not financial or investment advice. Any capital-related decisions you make are your full responsibility.

The UK takes the initiative 🇬🇧

The UK Law Commission has outlined new recommendations on how to regulate crypto. We won't bore you with the specifics of the recommendations. 

• The key thing is that the UK agrees that some digital assets are neither "things in possession” like a gold bar nor “things in action” like a debt.
• There's a proposal for a third category of rights to address the unclear status of some crypto assets.

The proposal also sets the stage for using crypto as collateral, and it confirms blockchain transactions as valid business transactions. If adopted and executed by the UK government, these proposals legitimise most DeFi applications.  

Now, this is where it gets interesting. 

With this proposal, DeFi applications are in a prime position to compete with TradFi products. We won't be surprised if we see tokenised securities issued directly by companies like Shell or BP trading on decentralised exchanges like UNISwap or Orca. We could even see some of them on derivatives exchanges like DYDX – again, this is pure speculation.

And, as we've stated in previous reports the centralised derivatives market is huge. If these reforms are passed, the door is open for institutions to participate. 

And they'll be using the UK as a gateway.

France joins the fray 🇫🇷

France has a similar stance, but it is not quite as open as what we've seen in the UK.

The country is focused on a global approach to try and unify regulation. So we see Paris being more aligned with the EU in its attempt to control DeFi rather than actively fostering innovation. 

It is noteworthy that the French financial authority, AMF, recognises that DeFi is cross-border, so harmonising regulation is the best way to handle the “situation.” 

That is a losing battle - there is no single point or person/entity to hold accountable for compliance. 

And that's why we still prefer the UK's approach - if you can't beat them, join them.

Now the big win: CBDCs x Curve🥇

What if there was a way to incorporate existing DeFi protocols into the future of CBDCs?

Just to be clear. We think CBDCs are a gross overreach of government influence and control. We will never support any attempt to impose that oversight on anyone.

But what if there's the possibility of using government-issued pseudo-cryptocurrencies in protocols outside of government control?

"Well, that's a lot of "what ifs”.

Yet, authorities like the BIS Innovation Hub, the Monetary Authority of Singapore, and the Swiss National Bank, are exploring how to use Curve Finance for on-chain wholesale CBDC pools.

The study found advantages in using a protocol like Curve to remove barriers to conventional FX trading. 

The report proves that protocols like CRV are building the future of finance, and central banks know and acknowledge it. The FOREX market is worth over $6.5 trillion in trading volume per day. 

Curve is on to a winner.

The study also found that utilising liquidity pools filled with CBDCs is much more efficient than current FX trading practices. We've been saying this for years. Especially the liquidity pool/AMM model of transacting *hint*. 

The government/central banks would control bridges to and from TradFi to DeFi. However, once on-chain, users, traders, banks - anyone - would be free to use those funds as necessary. 

All of these are still exploratory, but it highlights how some governments are shifting towards a “dip our toes” attitude towards DeFi.

Cryptonary's take 🧠

Regulation is inevitable - the challenge is that governments are known for over-regulating 

The UK seems to have its acts together, especially when compared to the SEC, which is hellbent on regulating crypto under 100-year-old laws.

Coupled with the study outlining the utility of Curve, it's clear that the innovation happening in DeFi finally appears to be gaining attention. 

It's important to note that it has not been signed into law - yet. 

But the information is there, and governments are under pressure to act.

The best time to bet on the future of DeFi was yesterday; the next best time to place your bets is now.  

For those just joining us - welcome to the party.🎉

Cryptonary, out!