EU DeFi proposals could push users to riskier platforms, says Coinbase exec

European Union efforts to tighten oversight of decentralized finance (DeFi) could drive crypto users toward platforms offering fewer investor protections, according to Coinbase’s head of EU policy.

Roeland Van der Stappen told Cointelegraph that regulated crypto platforms could respond by limiting or dropping access to DeFi services.

“Rules designed to protect investors would end up pushing activity towards the places with the least protection,” Van der Stappen said.

In its September response to the European Commission’s consultation on the Markets in Crypto-Assets Regulation (MiCA), the European Securities and Markets Authority recommended creating a new category of regulated crypto services for firms that give customers access to DeFi protocols.

EBA lists suitability tests as an option for crypto lending

In September, the European Banking Authority (EBA) urged the Commission to study new rules for crypto lending and borrowing, including when regulated platforms give customers access to DeFi lending protocols. It listed suitability tests, which assess whether a service is appropriate for a customer, as one option in its consultation response.

Related: France proposes liability for crypto exchanges offering DeFi access

Van der Stappen said that extending such tests to other DeFi services could mean treating a simple stablecoin swap the same way as leveraged lending, despite their different risks.

Lending, liquidity provision and on-chain swaps would be the most exposed activities, he said. Some providers may narrow their offerings or even withdraw DeFi access altogether.

“A proportionate approach would be to allow CASPs [crypto-asset service providers] to continue offering that access with safeguards matched to the activity,” Van der Stappen said.

Coinbase warns of fragmented liquidity

Van der Stappen said restricting access through regulated platforms could split DeFi liquidity into smaller pools and leave EU users with worse prices on trades.

He said the restrictions could encourage “walled gardens,” or isolated DeFi services, and steer users toward providers outside the EU with fewer safeguards.