Decentralized finance (DeFi) protocols operating in Europe may soon face new regulations. This is according to regulations laid out in the Markets in Crypto-Assets (MiCA) framework, which oversees digital assets in the region. The European Commission is obligated to produce a report by December 30, 2024, assessing the DeFi market and implementing specific regulations.
The report’s objective is to investigate how decentralized systems, particularly those lacking a clear issuer or service provider, should be regulated. To fulfill this report, the Commission has initiated various actions, including a study on embedded supervision. However, no policy decisions have been made at this stage, according to a spokesperson from the Commission.
DeFi represents a shift towards peer-to-peer finance facilitated by decentralized technologies built on blockchain. While conventional financial laws often focus on regulating intermediaries like banks or financial service providers, decentralized systems operate without such intermediaries.
Another potential avenue for DeFi regulation could emerge through the Financial Action Task Force (FATF). In specific cases, the FATF proposes that individuals or entities with control or significant influence over DeFi arrangements might be classified as Virtual Asset Service Providers (VASPs). This classification would apply even if the arrangements appear decentralized, highlighting the complexity of defining and regulating DeFi activities.