1inch Davos conference: Shaping decentralization

Here’s another post in our series of highlights from Shaping Tomorrow’s Financial Landscape Through DeFi - the conference 1inch held at the World Economic Annual Meeting in Davos on January 23.

Clara Guerra, Director of the Office for Financial Market Innovation & Digitalization of Liechtenstein, joined 1inch for a fireside chat around  “Shaping decentralization: the debate on DeFi regulation”. Speaking to Alireza Siadat, 1inch’s Head of Regulatory for the EEA Guerra explored the regulatory challenges facing the decentralized finance space.

She was quick to note that Liechtenstein, which is not an EU member state but belongs to the European Economic Area, was one of the first jurisdictions to introduce a comprehensive regulatory framework for blockchain technology. 

“And with that, I think we lent inspiration to many other jurisdictions who follow that principle of introducing registration supervision regimes for crypto asset service providers,” she said, adding that her country has also come a long way in implementing the Markets in Crypto Assets Regulation (MiCA), a regulatory framework introduced by the European Union back in 2023.

“We cannot rest on this success,” she added. “We have to keep moving because stability comes from ‘keep going,’ like riding a bike. If you stand still, you fall over. So we have to keep innovating.”

Meanwhile, Liechtenstein has made substantial progress in the area of tokenized real-world assets (RWAs). 

“We introduced the token as a legal object into our legal system,” Guerra explained. “That means that for our courts, it's clear what it means when you tokenize a physical object and what legal implications come with that.

Liechtenstein’s legislation provides clarity on acquiring ownership of a token, transferring tokens and situations when a token gets lost or someone acquires a stolen token in good faith, she explained. 

Another topic of the discussion focused on what projects could be considered fully decentralized and what legal treatment a fully decentralized project would have.

“While the technology may be decentralized, the underlying activities most of the time or at least many times still involve intermediaries,” Guerra observed, adding that challenges arise when it comes to a pure protocol-based DeFi project with no intermediaries. “And [in] pure smart contracts, there are no intermediaries and then it's going to be really difficult [to determine] who the addressee of the legislation is.”.

She also stressed the importance of industry representatives’ involvement in drafting relevant legislation.

“If we want to have sensible, practical, risk-based solutions that also work for the market, we have to have the stakeholders involved in drafting that regulation,” she said. “And I think the doors, be that from the European Commission, as well as also, of course, mine, are open. And I can only shout out to not moan and whine, but come up and be part of the solution and work with that.”

“And I'm a big believer that if and when done right, regulation can actually act as a catalyst for mass adoption and industry growth and do a lot of good things, [while] not necessarily hindering innovation,” she concluded.

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