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European Commission launches blockchain regulatory sandbox

The European Commission (EC) has launched a blockchain regulatory sandbox aiming to offer legal certainty for innovative blockchain solutions.

The Commission, which is the executive arm of the European Union, announced the European Blockchain Regulatory Sandbox recently, touting blockchain and other distributed ledger technologies (DLT) as innovative developments that can transform energy and utilities, healthcare, education, finance, mobility, supply chains, logistics, and other sectors.

“The European Blockchain Sandbox has been set up and is being operated to facilitate the dialogue between regulators and innovators for private and public sector use cases. Legal advice and regulatory guidance will be provided in a safe and confidential environment,” EC stated.

The sandbox will host 20 blockchain startups annually, running until 2026. Applicants will be vetted and selected by a team of academic experts from European universities. EC will then match these companies with the relevant national and European regulators for a “constructive dialogue on the most relevant regulatory issues.”

The Commission will select the startups based on their business case’s maturity, contribution to the broader EU policy priorities, and regulatory relevance. It will award the most innovative blockchain project from each annual cohort.

The sandbox was first announced in September 2020, with one of its stated goals being the advancement of the European Blockchain Services Infrastructure (EBSI). Dubbed the first public sector blockchain in Europe, EBSI is a partnership between the EC and the European Blockchain Partnership, a coalition between European countries to foster the advancement of DLT in the region.

While it focuses on Europe, the sandbox will accept applications from EU companies that collaborate on a project with non-EU companies, but only if the EU company takes the lead.

“This sandbox will provide legal certainty for decentralised technology solutions including blockchain by identifying obstacles to their deployment from a legal and regulatory perspective. It should also allow regulators and supervisors to enhance their knowledge of cutting-edge blockchain technologies and share best practices through dialogues,” the Commission noted.

The sandbox comes amid reignited interest in blockchain technology across Europe. In 2022, blockchain startups raised $263 million in 111 seed deals, the highest share (18.4%) of all seed deals in the European fintech industry.

It also comes at a time when the region is readying itself for implementing the Markets in Crypto Assets (MiCA) law. MiCA, which has divided opinion in the digital assets sector, will be more restrictive with aspects such as privacy coins and introduce a new licensing regime, among a raft of other changes.

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