- Peter Kerstens, who helped develop Europe‘s MiCA crypto regulations, questions the need for MiCAR 2, suggesting it’s primarily being pushed by the European Central Bank.
- Kerstens believes regulating true decentralized finance (DeFi) would be difficult without implementing a ban, which he opposes in democratic societies.
- He envisions tokenization on permissionless ledgers as blockchain’s future but identifies several barriers, including Basel Committee rules that he claims were influenced by US banking regulators.
During the EY Blockchain Summit, Peter Kerstens, the original architect of Europe’s MiCA cryptocurrency regulations, expressed skepticism about the necessity for MiCAR 2, suggesting it’s primarily driven by the European Central Bank. Kerstens, who is tasked with writing a report on potential regulations for decentralized finance (DeFi), crypto lending, NFTs, and certain stablecoin services, questioned whether regulation is the appropriate approach for truly decentralized systems.
Kerstens emphasized that meaningful regulations require entities to comply with them. “My mind is not big enough to imagine a regulatory doctrine that you can apply to non-persons, to non-entities. Unless it’s a ban,” he stated, adding that such bans would only be appropriate in totalitarian regimes, not democracies.
While acknowledging that most DeFi systems still involve counterparties and aren’t truly decentralized, he noted that genuinely decentralized finance without human counterparties does exist, though in niche applications. Kerstens pointed out that not every problem requires a regulatory solution, particularly when dealing with non-entity based systems.
The Pathway to Tokenization
Kerstens outlined five key requirements for advancing blockchain tokenization on permissionless ledgers. These include market readiness from buy and sell sides, appropriate infrastructure, central bank acceptance of tokenized assets as collateral, resolution of private law issues regarding blockchain asset transfers, and rethinking the current legacy infrastructure.
He candidly dismissed the notion that most regulation is technology neutral, observing that legislation typically reflects the technology available when drafted. “It is impossible to comply if you use a different technology stack,” he noted, highlighting initiatives like the EU’s DLT Pilot Regime that aim to determine necessary regulatory changes.
Banking Regulations and International Politics
A significant barrier to adoption of permissionless blockchains is the Basel Committee’s treatment of crypto-assets. Current rules classify tokenized securities on permissionless blockchains as high-risk assets, making it prohibitively expensive for banks to hold them in quantity.
Kerstens directly attributed these restrictive rules to US banking regulators, stating, “We owe this entirely to the US banking regulators. They hiked them up so much because they did not want to get banks involved in (the) crypto space.” He speculated whether the incoming US administration might change this approach or maintain it to disadvantage European competitors.
Despite these challenges, Kerstens concluded optimistically that if financial markets were built from scratch today, they would utilize blockchain technology, which he characterized as “really an accounting system on steroids.”
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