Recently, Brad Jones, Assistant Governor of the Reserve Bank of Australia, claimed that the ongoing advancements toward Central Bank Digital Currencies (CBDC) and tokenization are going to change the future of finance. Similar thoughts have been published by the European Central Bank regarding Decentralized Autonomous Organizations (DAOs).
ECB publishes Occasional Paper
In the Occasional Paper (OP) authored by Ellen Naudts, a market infrastructure expert in payments, a crucial message was shared. As per Naudts, DAOs urgently need a proper regulatory framework to secure their presence in the future of the financial sector.
The paper, titled “The future of DAOs in finance – in need of legal status,” highlighted how the rapid evolution of technology in the realm of DAOs has outpaced regulatory standards, potentially risking the safety and sustainable growth of this innovative ecosystem.
Challenges in regulating DAOs
As DAOs continue to introduce unique financial offerings and flood the market, the existing regulatory framework, primarily designed for a pen-and-paper era, must handle the various risks that these firms pose to investors. The absence of proper global regulation exposes the financial sector to potential threats, restricting the smooth operation of payment and securities systems, and putting consumer protection at risk.
Related Article: California introduces bill to provide legal framework for DAOs
The ECB’s paper concluded with a strict warning, claiming that until DAOs are effectively regulated on a global scale, addressing the challenges they pose to financial stability, seamless payment systems, and consumer protection, their role in the financial sector of the future will remain limited.
Digital Euro and Regulatory Solutions
Concurrently, Fabio Panetta, an executive board member of the ECB, highlighted the importance of the digital euro in the rapidly evolving financial sector. He supported the European Commission’s legislative proposals regarding the digital euro, which could position Europe at the forefront of advanced economies.
Along with this Panetta also highlighted that the digital euro would guarantee that Europeans always have access to a public payment option, be it cash or digital, particularly as private payment services become increasingly prevalent with their closed-loop solutions.