The European Central Bank (ECB) has called for the development of a comprehensive regulatory framework to address the liabilities and risks associated with Decentralized Autonomous Organizations (DAOs).
In a recent paper titled “The future of DAOs in finance – in need of legal status,“ the ECB highlights the need for a regulatory framework to ensure financial stability, the smooth operation of payment and securities systems, and consumer protection in the context of DAOs.
The paper, which was authored by Ellen Naudts, a Market Infrastructure Expert at ECB, underscored the growing disparity between the rapid technological advancements of DAOs and the outdated regulatory landscape, emphasizing that this gap poses a significant threat to the safety and sustainable growth of the DAO ecosystem.
While DAOs offer unique financial products and services, the paper argued that relying on outdated registration frameworks is inadequate for addressing the risks they pose to investors.
Naudts’s paper concluded that: “Until DAOs are adequately regulated globally, in the sense that the above mentioned challenges have been solved so that they do not and will not in future pose a serious threat to financial stability, payments and securities systems operate smoothly and consumers are properly protected, the place for DAOs in the financial sector of the future will necessarily remain limited.“
The ECB’s proactive stance regarding DeFi technologies has been evident in the last few months. Fabio Panetta, an executive board member of the ECB, had earlier expressed his support for a digital euro in September 2023. He argued that a digital euro could “position Europe as a leader among advanced economies.”
???? A digital euro would be a new form of central bank money, says Executive Board member Fabio Panetta. It is now up to legislators to ensure it would replicate key characteristics of cash in the digital sphere, particularly its privacyhttps://t.co/nQJzYylwpV
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— European Central Bank (@ecb) September 4, 2023
Panetta explained that a digital euro would ensure that Europeans always have access to a public payment option, even as private services become more widespread. He also endorsed the European Commission’s legislative proposals to provide a digital alternative to traditional currencies.
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