Europe Considers Creating DeFi-Specific Regulations

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  • Europe may consider formulating regulations to govern the DeFi space
  • The European Commission is required to evaluate and report on such a possibility by the end of this year
  • The preparations are in line with the MiCA regulations passed last year

A year after European lawmakers approved the Markets in Cryptoassets (MiCA) regulations, Europe may consider expanding the framework to include DeFi-specific regulations. Under the MiCA provisions, the European Commission is required to observe the decentralized world and prepare a report on whether the space needs such regulations before the end of this year. The commission has started evaluating the DeFi world with a commission spokesperson noting that it hasn’t made any policy decision on the issue yet, although such a decision is likely to be made in 2025 due to the unique nature of decentralized finance.

The EU Returning to the Stone Age?

In the report, the commission will focus on systems that facilitate crypto-based lending and borrowing. The evaluation of DeFi within Europe is meant to offer a “concrete definition for DeFi” within the MiCA framework.

The commission will also check on the decentralization degree of platforms offering lending and borrowing services in the space. The report is expected to contain strategies on how to increase the decentralization of DeFi platforms such as the use of subDAOs to decentralize voting power.

The possibility of creating DeFi-specific regulations wasn’t well received in the crypto community with some like MakerDAO co-founder Rune Christensen noting that such regulations “decelerate [the EU] to the stone age.”

It’s Unavoidable

Others, however, observed that DeFi-specific laws are unavoidable and that they’ll mostly impact platforms that aren’t fully decentralized.

The revelations come a month after the EU resolved to set up crypto-focussed Anti-Money Laundering Authority and nine months after it expressed the need for a global approach to governing the metaverse.

Although no policy decisions have been made concerning DeFi-specific regulations, such a possibility is inevitable once the EU defines decentralized finance.