The EU's DLT Pilot Regime. Sounds impressive, right? An exciting leap forward in the future of finance. Cost aside, let’s be honest, the adoption rate is… well, embarrassing. Two projects approved? That’s not even the number of times I’ve had to explain blockchain to my uncle at Thanksgiving dinner. The French (AMF) and Italian (CONSOB) regulators are panicking, amending their rules to lure participants. And fixing a bug, or deeply misreading the monster.

Now the regulators are discussing “increased proportionality,” setting activity thresholds that vary with the size of the project. Okay, that makes sense on the surface. But here's the rub: are they truly addressing the core issues preventing wider adoption, or just tinkering around the edges, like trying to fix a rocket ship with duct tape?

Think about it. The EU—known for many as the world’s regulatory superpower—is using its regulatory authority to encourage decentralized technology. It’s like herding cats with a laser pointer– you can do it in theory, but in practice, not so much. Decentralization and immutability Blockchain technology is built on the idea of decentralization. It cuts out middlemen, lowers corporate power and influence, and democratizes information. What the EU could never be is a transformative force—the EU, by its very nature, is an intermediary, a control mechanism.

This isn't just about activity limits. It's about the spirit of the thing. It goes to the heart of whether regulators appreciate that the best permissionless innovation happens in spaces not regulated to death.

It’s a telling comparison as well to the UK’s Digital Securities Sandbox (DSS). As in other domains, the AMF and CONSOB are concerned about the effects of competition. This highlights a critical point: regulation isn't just about protecting investors; it's about economic competitiveness. And right now, the EU is losing.

Is the UK’s DSS really better, or just different. Are either of these sandboxes just gilded cages, managed environments that kill real innovation before it gets a chance to sprout? The real question is: who will attract the best projects, the ones that will actually change the financial landscape?

Here’s where this gets really interesting and where we really need to think about all of the surprising, hidden connections. The EU’s approach, though well-intentioned, could end up falling into a “libertarian trap” of its own.

By attempting to “control” and “tame” DLT, the EU may be scaring off the most innovative, truly decentralized projects. That’s why these kinds of projects, those that would disrupt the status quo of centralized control, will inevitably gravitate to jurisdictions with more permissive regulatory environments. This creates a self-fulfilling prophecy: the EU gets left with the "tame" projects, while the truly revolutionary ones flourish elsewhere.

It would be about as effective as taking a wild stallion and trying to put him in the Olympics for dressage. You can learn to make it do some cool moves, but you will never really unlock what it can do.

Look at 21X. It’s presented as a poster child for rules-light, letting one firm control the entire trading and post-trade stack. Is this the future we want? A decentralized organization, completely independent, operating on a permissionless, trustless blockchain? To represent some form of regulated decentralization. It truly sounds like regulated decentralization, an oxymoron if I’ve ever heard one.

Of course, there is the FUD. The EU's cautious approach stems, in part, from a legitimate concern: protecting investors. We know the wild west of crypto landscapes has already experienced its fair share of scams, rug pulls and shake downs. Is the only answer to build a regulatory fortress that chokes out innovation? Or is it to transform how investors think, drive responsible development, and let the market develop naturally through positive peer pressure?

The regulators are also looking for prompt progress toward a resolution of support for a central bank money settlement solution. This is where the anxiety creeps in. The EU is apparently looking to maintain sovereignty over the settlement layer. Their goal is to make sure that they are never not the ones calling the shots. Is this truly necessary? Or are they just scared of losing hegemony over the monetary regime?

So, what can you do? Demand transparency from your elected officials. Ask them:

Don’t allow the EU’s DLT Pilot Regime to become another bureaucratic boondoggle. Demand accountability. Support regulatory frameworks that encourage real innovation, not the innovation of regulation decentralization. The future of finance is at stake.

Echoing remarks made earlier by the chairs of AMF and CONSOB, they say Europe urgently needs a level competitive playing field. They're right. But words are cheap. Here’s why the EU must act decisively, boldly and quickly. Otherwise, it risks being rolled off to the proverbial scrap heap, a museum piece in the digital revolution. And that would be a pity indeed — not only for Europe, but the world.

The regulators also want rapid support for a central bank money settlement solution. This is where the anxiety creeps in. The EU wants to control the settlement layer. They want to ensure that they are always in charge. But is this truly necessary? Or are they simply afraid of losing control of the monetary system?

Actionable Advice: Demand Transparency

So, what can you do? Demand transparency from your elected officials. Ask them:

  • What are the specific goals of the DLT Pilot Regime?
  • How will success be measured?
  • How will the EU balance investor protection with fostering innovation?
  • What are the contingency plans if the DLT Pilot Regime fails to attract significant participation?

Don't let the EU's DLT Pilot Regime become another bureaucratic boondoggle. Demand accountability. Advocate for a regulatory environment that fosters true innovation, not just regulated decentralization. The future of finance is at stake.

The Clock is Ticking

The chairs of AMF and CONSOB emphasize the need for a competitive framework in Europe. They're right. But words are cheap. The EU needs to act decisively, boldly, and quickly. Otherwise, it risks being left behind, a museum piece in the digital revolution. And that would be a tragedy, not just for Europe, but for the world.