Malta’s financial regulator explores bringing parts of DeFi under MiCA’s orbit

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 provided in a “fully decentralised 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 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 grey area under the EU’s framework for regulating crypto, as it excludes services provided in a fully decentralised manner, but lacks a clear description of when a protocol or platform meets that threshold.

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.