France proposes liability for crypto exchanges offering DeFi access
French authorities want crypto exchanges to conduct checks on DeFi protocols and face liability for certain customer losses under proposed changes to EU crypto rules.
Asanat Analysis — Why it matters
France's proposal to impose liability on centralized exchanges (CEXs) for DeFi protocol risks represents a significant regulatory escalation that conflates two distinct infrastructure layers. By requiring exchanges to conduct due diligence on decentralized protocols and assume liability for user losses, the framework treats CEXs as custodians of DeFi risk—a position that inverts how these systems actually function. This mirrors historical regulatory overreach: treating intermediaries as liable for end-user decisions in permissionless systems they don't control.
The proposal signals growing EU friction over regulatory gaps in DeFi, but creates perverse incentives. Exchanges may simply delist DeFi access or impose geographic restrictions rather than accept unbounded liability for protocols governed by smart contracts and anonymous teams. This doesn't eliminate DeFi usage—it pushes it offshore to unregulated venues and DEXs with no KYC. The real second-order effect: further fragmenting European crypto infrastructure and accelerating capital flight to jurisdictions with clearer rules (Singapore, Switzerland, Dubai).
For the broader sector, this foreshadows how legacy regulators will handle decentralized finance: regulatory pressure will target CEX on/off-ramps rather than protocols themselves, since regulators lack mechanisms to enforce rules on code. The precedent matters—if France succeeds in the EU proposal, expect similar attempts in the US and UK, reshaping which CEXs operate in regulated markets and accelerating non-custodial trading volumes.