Malta’s financial regulator is examining how decentralized finance (DeFi) could fit into the EU’s Markets in Crypto-Assets (MiCA) framework, focusing on governance, accountability and the importance of “full decentralization.”
The Malta Financial Services Authority (MFSA) said that while MiCA rules out cryptocurrency services provided in a “fully decentralized manner without any intermediary”, many DeFi projects retain centralized features such as administrator keys, governance 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 MiCA’s scope.
DeFi is something of a gray area under the EU’s crypto regulatory framework, as it excludes services provided in a fully decentralized manner, but lacks a clear description of when a protocol or platform meets that threshold.
The MSFA’s paper also asks whether regulated crypto firms should be required to conduct smart contract audits, governance reviews and risk assessments before integrating DeFi protocols into their services.
