Malta’s financial regulator is exploring how decentralized finance (DeFi) could fit within the European Union’s Markets in Crypto-Assets (MiCA) framework, focusing on governance, accountability and the meaning of ‘full decentralization’.
The Malta Financial Services Authority (MFSA) said that while MiCA excludes cryptocurrency services that are offered in a “fully decentralized manner without any intermediaries,” many DeFi projects retain centralized functions such as admin keys, board concentration, protocol upgrade rights and control over user-facing interfaces. in a discussion paper published on Wednesday.
The regulator is seeking feedback on whether decentralization should be assessed as a spectrum rather than a binary concept and whether a standardized framework should be developed to determine when a protocol falls outside the scope of MiCA.
DeFi is something of a gray area within the EU framework for regulating cryptocurrencies, as it excludes services that are offered in a fully decentralized manner, but has no clear description of when a protocol or platform meets that threshold.
MSFA’s article also asks whether regulated crypto companies should be required to conduct smart-contract audits, governance reviews and risk assessments before integrating DeFi protocols into their services.