The DLT Pilot Regime and DeFi

Abstract

This chapter discusses the new DLT (Distributed Ledger Technology) Pilot Regime issued by the EU, considering its use and applicability regarding DeFi (Decentralized Finance). As set out in the ESMA (European Securities and Markets Authority) Report on crypto-assets, the authorities are having difficulties interpreting the existing legal requirements, discussing their application to crypto-assets and DLT structures. The DLT Pilot Regime is intended to operate in a way akin to a regulatory sandbox, permitting and framing the operation of market infrastructures that process trades in crypto-assets qualified as financial instruments and that otherwise would not be allowed to operate or would be subject to excessive and burdensome requirements. The regime aims to create legal certainty in view of the rules currently defined for secondary markets in financial instruments, particularly if these rules are fully suited to DLT and crypto-assets while also ensuring the protection of investors, market integrity and financial stability.