Brussels’ war on crypto is a golden opportunity for post-Brexit Britain

The Treasury also gurgles warmly about the potential of decentralized finance, although the “de-fi” truncation is deemed too spicy or vulgar to appear.

De-fi uses Distributed Ledger Technologies (DLT), in other words, blockchain, in combination with smart contracts, to create new types of financial instruments that collateralize a cryptocurrency or an underlying coin. underlying.

These turn out to have interesting properties, such as liquidity discovery. The Treasury notes the spectacular explosion of interest in de-fi, with a tenfold increase in just over 18 months.

Crypto finance now appears as a parallel to increasingly pious capital markets, one without dominant market players and no one in charge.

Whitehall thinks “substantial benefits” could be brought here by adopting some of these innovations, and so he encourages experiments to learn more. A financial market infrastructure sandbox will be operational next year.

So far so good, and at least the Treasury seems more enlightened than the taxman, who want to know every accumulation of value in a crypto wallet, even if it happens hundreds of times per second, which is the case with some new challenge instruments.

“Anyone doing serious crypto in the EU was already considering moving. Sunak wants them to come to the UK; it’s a smart move,” one successful de-fi investor tells me.

Importantly, the Treasury-blessed sandbox can help shed light on the very puzzle at the heart of crypto-finance, which has yet to be solved. It’s this: does de-fi prove useful because it’s decentralized and distributed, using blockchain and contracts – or simply because it’s money as software, and that institutional actors have been slow to implement these ideas?

If the answer is the second, then today’s established and regulated players can step in and embrace the new tools, and benefit from them.

Yet crypto-finance appeals to its enthusiasts precisely because it is completely decentralized and beyond the reach of the authorities. They are particularly keen to keep it out of the hands of incontinent central bankers, who have become addicted to printing money.

What, they ask, would be the point of a cryptocurrency that a central bank could print on demand? For them, a regulated crypto world makes no more sense than being a little pregnant.

Bridging the two universes has already had a high-profile victim: Mark Zuckerberg. Less than three years ago, Facebook announced an ambitious cryptocurrency initiative, Libra, in hopes of bringing respectability to the new Wild West.

Visa and Mastercard were involved and a complex governance structure was designed. But the more Facebook sought to please US regulators, the more it found itself shunned by the crypto community who would use and invest in it.

Meta eventually dropped the plans in January. So it’s really only with regulatory experiments like Sandbox that we can begin to solve this conundrum.

For once, Whitehall has actually realized that the UK has left the EU, perhaps allowing British pragmatism to chart a course for others to follow.

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