Guest Contributor
Editor-in-chief The Tokenist
The following is a guest post and opinion from Shane Neagle, editor-in-chief of The Tokenist.
Between the end of 2025 and July 2026, the European Union’s MiCA (Markets in Crypto-Assets) regulations will come into full force. In particular, crypto exchanges, self-custody wallet providers, custodians, asset transfer providers, stablecoin issuers and portfolio managers will need to obtain formal permission to continue operating.
It is striking that of the 27 EU member states, only Poland is postponing the national implementation of this strict crypto framework. Polish President Karol Nawrocki vetoed the MiCA-compliant bill this month because it would “threaten the freedoms of Poles, their property and the stability of the state.”
In the future, the Polish parliament would have to override the veto with a three-fifths majority.
One must then wonder whether the entire world would experience such consequences when it comes to the promise of Decentralized Finance (DeFi). After all, the EU forever worsened the average person’s experience with the internet when it introduced the General Data Protection Regulation (GDPR) in 2018.
Since then, the first interaction of the end user on any website (even outside the EU) must be characterized by consent to cookies. Given that DeFi adoption already involves onboarding, is MiCA the sign of the end of DeFi?
How MiCA discourages crypto startups
Although MiCA is limited to EU member states, with the exception of Poland, it prohibits the use of third-country equivalence. In other words, if a crypto team in Singapore or the US wanted to serve customers in the EU, they would have to go the extra mile to establish a legal presence in the EU, and only then apply for permission to operate.
The EU did this to eliminate regulatory arbitrage and substitutes for MiCA in other countries, even if they are virtually identical. Right there, this encourages DeFi services to simply geographically restrict the entire EU market.
Furthermore, any crypto intermediary such as Binance or Coinbase is classified as a CASP – Crypto-Asset Service Provider. Under the MiCA framework, it is easy for these well-funded entities to transition to legal status and even open physical offices in the EU.
While CASP status is beneficial, it also comes with onerous fees and reporting requirements, similar to those of a banking institution. This has been the premise for regulatory frameworks since the rise of the modern state: gaining control and oversight through centralized chokepoints.
How MiCA opens the door to arbitrary shutdowns
MiCA appears to be deliberately designed to favor large entities, which are willing to spend money on administrative costs and capital reserves. In turn, crypto startups that have to count every cent would be left behind.
Furthermore, the whole point of Decentralized Finance (DeFi) is to not have entities eligible for inclusion in CASP status.
Rather, true DeFi protocols are simply sets of smart contracts on a given blockchain network. Technically, MiCA allows this exemption, but only if the DeFi protocol is “fully decentralized.” This is where MiCA’s gray zone lies, in its ability to shut down access to websites, as a front-end of smart contracts.
We saw this in play when the US Treasury Department’s Office of Foreign Assets Control (OFAC) sanctioned virtual currency mixer Tornado Cash. While OFAC could not sanction the running code on a blockchain that creates this DeFi protocol, it has effectively shut it down by pursuing compliance from the front-end intermediaries.
For most of Web3, companies like Infura and Alchemy hold that position, as centralized infrastructure providers, also responsible for hosting Amazon Web Services (AWS). This is a clear hierarchy of centralization that regulatory authorities can point to when assessing whether a DeFi protocol is “fully decentralized,” according to ESMA’s “spectrum of decentralization.”
And while these companies didn’t technically discontinue the Tornado service, they did so effectively by making the default UI website inaccessible. In turn, only a micro-fraction of tech-savvy users were able to bypass this front-end lockout.
What can you expect from the MiCA rollout?
Similar to the cookie-allowance fatigue, at best, users will likely encounter new “Terms of Service” pop-ups. In the worst case, one should expect outright geoblocking in anticipation of the deadlines, making a VPN service necessary.
But even if the VPN is legal to use, bypassing it can itself violate the protocol’s ToS and expose individuals to legal risks in their own jurisdictions. In such an environment, some participants may reassess whether the potential benefit justifies the additional friction, considering key concepts such as capital gains or dividend income when comparing cryptocurrency exposure to more traditional assets.
On the plus side, MiCA does not consider self-custodial wallet providers as CASPs, which applies to mainstream wallets like Metamask, Phantom, WalletConnect, Binance Wallet, and others.
Yet another EU framework, the Transfer of Funds Regulation (TFR), ensures traceability when users transfer funds from these self-custodial wallets to CASPs like Binance. In particular, CASPs are required to collect logs of these transfers for tax/illegal purposes, typically above the €1,000 threshold.
In this way, CASPs maintain audit-ready trails, which can be used by regulatory authorities at will. Finally, despite the fact that the entire point of MiCA focused on regulatory harmonization, Poland has already shown division.
This is even evident among EU members that have adopted MiCA, as they implement it to varying degrees. The European Securities and Markets Authority (ESMA) of July report confirmed this dynamic and effectively tried to close the implementation gaps that could lead to arbitrage opportunities.
Seen December proposal of the European Commission to increase the powers of ESMA, this patching will probably succeed.
The bottom line
Just like the pursuit of a net-zero policy is crippling the EU’s industrial strength and living standards, the hyper-regulatory nature of the EU is crowding out DeFi innovation. One of the reasons is the implementation of the Central Bank Digital Currency (CBDC), which was canceled in the US in favor of privately managed stablecoins.
The European Central Bank (ECB) has been around for a long time concerned that stablecoins could drain the eurozone’s retail coffers. Viewed through this lens, MiCA is less about consumer protection and more about defensive financial policy.
Even if the underlying smart contracts remain immutable, MiCA’s ill-defined gray area allows regulators to leverage existing bottlenecks: front-end hosting.
Ultimately, MiCA represents a strategic effort to manage systemic risk and strengthen central authority in the digital age. And if true DeFi innovation and adoption suffer, it’s a small price to pay in the eyes of EU bureaucrats.
