Malta’s financial regulator is exploring how decentralized finance (DeFi) could fit into the European Union’s Markets for 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 provided in a “fully decentralized manner without any intermediaries”, many DeFi projects retain centralized features such as administrator keys, governance focus, protocol upgrade rights and control over user-facing interfaces, in a discussion paper published on Wednesday.
The regulator wants to know 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 somewhat of a gray area in the EU crypto regulatory framework, as it excludes services provided in a fully decentralized manner, but it lacks a clear description of when a protocol or platform reaches this threshold.
MSFA’s paper 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.
