Unstoppable Finance Statement on the Critical EU Vote on DeFi Wallets on Thursday

Crypto was built as peer-to-peer payments system and infrastructure. Its key piece of innovation is the solution to the double-spend problem for digital assets and value. For the first time in history, digital transactions of value without third-party intermediaries were made possible.

Later-on in the development cycle, financial services were built in a decentralized way with smart contracts — called Decentralized Finance (DeFi). The consequence is the emergence of the most automated and transparent financial system in human history.

With some passages of the Transfer of Funds Regulation (TFR) to be voted on this Thursday 31st of March 2022 / tomorrow in the EU Parliament, the EU could heavily damage the heart of blockchain-based innovation. The ability to hold and transact digital value without any third party.

It reveals that unfortunately, most public stakeholders still see crypto as a purely speculative asset-class vs. what it really is: a base layer technology and infrastructure for all kinds of financial and non-financial applications.

Admittedly, the first wave of crypto adoption in the decade between 2010–2019 was primarily coined by the trading of crypto-assets on centralized exchanges. However, it is clear that from 2020 onwards, crypto’s premises are finally coming to fruition. Decentralized financial services have seen tremendous demand and growth, decentralized art, collectibles and communities (NFTs & DAOs) have sprung up like mushrooms, and decentralized identity (ENS etc.) is finally making its way into the mainstream.

Wallets (called “unhosted wallets” in the FTR) are at the center of this new era of crypto usage vs. crypto speculation. In a blockchain-based ecosystem, self-custody is the norm rather than the exception.

Without doubt, this development is still in its infancy and displays several shortcomings that have to be tackled in the future (usability, consumer protection, transparency, etc.), both by private companies and public regulators.

Nonetheless, the basic foundation of this innovation is a system that is global by nature, transparent and traceable, and less prone to political or corporate influence and corruption. Whoever cares about anti-money laundering, corruption, and economic equality should be a vocal supporter of blockchain-based, highly transparent systems of value transfer.

If the EU amendments with regard to the verification of unhosted wallets are adopted, that would jeopardize the primary innovation (P2P, self-custody) of blockchain technology. Not only would it be a huge infringement of digital privacy (a self-custody wallet is basically the same as our physical wallets in our pockets), but what worries us just as much is the detrimental effect it would have on the deeply needed financial innovation in Europe and beyond.

Transfers from crypto service providers (exchanges etc.) to DeFi wallets would become more costly and burdensome. All without a clear benefit in the context of AML.

We believe that in doing so, we as citizens and the EU as an important economic region would miss out on the most important innovation that blockchain heralds — a new technological base layer for the best financial system that ever existed.

Europe manifests its position in the stone age of digitization compared to the US and Asia.

Therefore, we urge all MEPs in the ECON and LIBE committees in the EU Parliament to vote against the compromises D & E of the Transfer of Funds regulation.

PS: It goes without saying, but we are eager to engage with all interested policy stakeholders to find solutions that address the legitimate AML concerns while preserving the benefits of the underlying technology.

Unstoppable Finance is building a DeFi Super App with the mission to become the universal consumer gateway to Web3. A multi-chain, fully non-custodial wallet that makes investing into web3 truly mass-ready. Say goodbye to complexity. Say hi to DeFi. Launching soon.

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