ConsenSys, a leading Ethereum-focused development studio, has submitted a recommendation to the UK authorities, urging them to prioritize the regulation of applications over blockchain protocols. The suggestion comes as part of a response to an ongoing UK investigation into the expanding realm of decentralized finance (DeFi) and related cryptocurrency activities.
The firm suggested its stance in a letter released on Tuesday that articulated a shift towards a more nuanced and targeted regulation method for public-facing blockchain applications. This would mitigate potential risks without impeding the core infrastructure of the blockchain. ConsenSys believes such an approach mirrors the existing regulatory framework for the second generation of the internet, commonly called Web2.
In advocating for a focus on specific activities and services instead of imposing broad limitations on the entire blockchain infrastructure, ConsenSys stated: “The actual products or services posing potential risks should be the primary focus of regulation, not the open-source code, which is inherently neutral in its purpose.”
The Brooklyn-based firm stressed the significance of scrutinizing the level of control certain individuals or groups exert over DeFi applications. They caution against situations where parties can manipulate smart contracts or have access to private keys, asserting that these are areas ripe for potential risk. Consequently, regulations must tackle these issues while fostering innovation and encouraging a steady shift toward decentralization.
In addition, ConsenSys drew attention to the challenge of maintaining data integrity outside the blockchain. They note that while blockchain data can be audited and verified, the same level of trustworthiness is not extended to real-world data or data introduced via oracles. As such, any regulatory framework should consider these concerns to ensure a comprehensive approach to blockchain regulation.
