ECB Official Calls for Enhanced DAO Regulation Amid Digital Euro Discussions

The European Central Bank (ECB) has highlighted the necessity for thorough regulations surrounding Decentralized Autonomous Organizations (DAOs) in a recent occasional paper. The paper, authored by Ellen Naudts from the ECB’s Market Infrastructure Expert Payments division, emphasized the urgent need to address DAO technology, which has progressed faster than current regulatory measures can accommodate.

The paper pointed out the distinct risks that DAOs pose to the safety and growth of the financial ecosystem. It argued that existing registration frameworks, which are based on traditional, outdated methods, are insufficient to tackle these emerging risks. The absence of a global regulatory framework addressing these challenges could hinder the potential of DAOs in future financial systems and may represent a significant threat to overall financial stability.

In a related context, a nameless ECB official voiced criticism of cryptocurrency, deeming it ‘deleterious.’ These remarks are part of a larger discourse within the ECB concerning the growing prominence of digital currencies and their possible repercussions for consumer protection, as well as the efficient operation of payment and securities systems.

Conversely, ECB board member Fabio Panetta has been promoting the digital euro initiative, asserting that this step could place Europe in a leading position among advanced economies. He supports the European Commission’s legislative proposals for a digital euro, suggesting that it would ensure access to a public payment option for Europeans as ‘closed-loop solutions’ become more common in private services.

The paper also presented the idea of a digital euro—a proposed Central Bank Digital Currency (CBDC)—that could function alongside Decentralized Finance (DeFi) solutions like DAOs, provided these entities adhere to regulatory guidelines. Furthermore, discussions within the paper touched on the potential applications of zero-knowledge proofs beyond the realm of cryptocurrency and emphasized the need to protect privacy in the digital landscape.