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Crypto: How the German financial regulator is slowing down the hype

The new hope of the crypto world is hidden behind a cryptic abbreviation with four letters: DeFi. This stands for “Decentralized Finance”, financial services without intermediaries such as banks – decentralized. So far, crypto enthusiasts in particular have been cavorting in the DeFi area, but DeFi applications are still too complicated for normal investors. But a Berlin fintech now wants to change that.

The crypto company Unstoppable Finance has launched a new smartphone app: Investors in Germany should be able to use it to store crypto assets themselves, trade them and earn interest by investing in selected DeFi protocols. At least in theory.

The problem: The wallet – i.e. the digital purse – with the name Ultimate is only available in a light version in Germany. Users can check token prices in real time and manage their own coins. However, you cannot trade through the app, although that is supposed to be one of its core functions. So the app starts according to the principle: Just look, don’t touch.

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The background are problems with the financial regulator BaFin. The launch of the Ultimate app was actually planned for November last year. The app has since been available in most Western countries. But nothing came of the Germany start for the time being.

According to financial circles, BaFin announced Unstoppable Finance shortly before the launch that the company would fall under the supervision of BaFin and would first need its approval. To date, more than six months later, nothing has happened. The fintech is still in contact with the supervisory authority.

Founder Peter Grosskopf does not resist regulation. He was always involved with BaFin: He helped build Solarisbank and headed the Stuttgart Digital Exchange. Grosskopf accuses BaFin of acting too slowly – and of forcing its fintech into a regulation that does not reflect the characteristics of the DeFi sector.

German crypto companies “strongly disadvantaged”

BaFin is examining whether the Unstoppable Finance offer is relevant for regulatory purposes. “Business models that are not only supposed to be decentralized but are actually decentralized are not per se free of permission,” said a spokeswoman on request. Grosskopf sees it differently: His app is comparable to an Internet browser that users can use to call up different websites independently. It is therefore only the tool, not an intermediary.

Grosskopf is disappointed with the delay. If BaFin sticks to its stance, Unstoppable Finance would be “seriously disadvantaged compared to competing providers who continue to offer their services in Germany without a license,” he complains. Meanwhile, BaFin does not recognize any preference for foreign providers. The motto “same risk, same rules” applies. “If you act without a necessary license in Germany, then you are conducting unauthorized business that we are pursuing, prohibiting and processing,” said a BaFin spokeswoman

In fact, there are already similar products from providers such as the crypto wallet Metamask that can be used in Germany without any BaFin approval. The crypto exchange Binance, for example, now has several million German customers, although it does not yet have a BaFin license. As long as the providers do not actively advertise for German customers, the supervisors do not intervene. German companies, on the other hand, are generally subject to BaFin supervision. A limitation that other fintech entrepreneurs also criticize.

According to Unstoppable Finance, 500,000 prospects are waiting to be approved to use the Ultimate app. So far, only around 10,000 users are active on the platform. The reason: the app has only been available for the Android operating system for a few weeks, and the majority of those interested come from Germany.

Fintech wants to set up a full bank

Founder Grosskopf is sticking to his plan to soon offer a full version of the app in Germany. Schedule: uncertain. In the event of an emergency, Grosskopf plans to flee to the front: “If it is necessary to go abroad, this is a sad consequence.”

If Unstoppable Finance operates from another country, it can also launch the full version of its app in Germany. There is a certain irony in the fact that the emergency solution could be a step that the fintech criticizes others. If in doubt, going abroad would make economic sense. After all, investors have invested a two-digit million amount in the start-up and want to see income.

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While Unstoppable Finance continues to seek approval from BaFin, the fintech is planning a further step at the same time: last week it announced that it wanted to set up a full bank. The crypto company wants to open a financial institution in decentralized finance and thus bring together the bank and blockchain. Blockchain, the technology behind cryptocurrencies like Bitcoin, is the digital data protocol on which all transactions are stored. The start of the full bank is planned for the coming year – if talks with BaFin go well.

Also read: How the crypto industry wants to make the next evolutionary leap

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