“What future for cryptocurrencies in 2023?”

Denis Beau is First Deputy Governor of the Banque de France

Will 2022 go down in history as the year that marked "the beginning of the end" of crypto-assets and decentralized finance (known as DEFI)?

Indeed, their highly dynamic and creative development has had as its corollary increased risks and losses for their players and clients, some of which have materialized dramatically, with the collapse of the third most important “stablecoin” system ( obviously misnamed), Terra-Luna, the bankruptcy of FTX, one of the world's largest crypto-asset exchanges, and the shake-up of other players in their ecosystem, including liquidity providers like Genesis or BlockFi.

They were accompanied by a reduction of almost 70% in the capitalization of all crypto-assets, which returned to its level at the start of 2021.

While these violent tremors have probably not yet produced all their chain effects, they are already rich in lessons.

An important lesson relates to the general principles of organization and resources, particularly in terms of governance, internal control, protection of client assets, separation of activities and prevention of conflicts of interest with affiliated entities, accountability, transparency that apply to traditional financial players, given the risks inherent in financial activities.

So far, the scope of these principles has been very limited, their content undemanding and uneven from one jurisdiction to another for players in the world of crypto-assets, on the grounds that it should not be unduly slow down the dissemination of the innovations they carry.

We are convinced that the world of crypto-assets and decentralized finance will only develop again, usefully and sustainably with an appropriate regulatory framework, a vector of trust.

Denis Beau

The difficulties encountered by certain players, the effects of contagion regardless of borders, the losses and thefts suffered by their customers, now make it necessary to reconsider this policy and to evolve rapidly at national, European and international level towards broader regulatory requirements. , more robust and more harmonized, in line with the joint recommendations of the G20 and the FSB on consumer protection, financial stability and the fight against money laundering.

At the Banque de France and the ACPR, based on our experience as supervisors of traditional financial players and of the financial system as a whole, we are convinced that the world of crypto-assets and decentralized finance will only develop new,

usefully and sustainably only with an appropriate regulatory framework, a vector of trust.

Its objective should be to allow all competitors to be placed on an equal footing, without suffering the harmful consequences of “rogue” actors, as has been the case until now.

It should also aim to strike the right balance between the objectives of protecting customers and maintaining financial stability on the one hand, and operational realities on the other.

Europe has been a pioneer on this path, by defining a new regulatory framework, known as MICA (Markets in crypto assets regulation), which should come into force in the first quarter of 2023, and in application at the end of the first half of 2024. In this perspective, the establishment in France

rather than simple registration, of a mandatory approval of PSANs (digital asset service providers) before the entry into application of MICA, currently under discussion, is desirable.

It should facilitate and accelerate the adaptation of players, established or who are settling in France, to a regulatory environment that will allow them to evolve in a framework of trust for all on the path to innovation.