The Malta Financial Services Authority (MFSA) has published a discussion paper exploring how decentralized finance (DeFi) can be integrated into the European Union's Markets in Crypto-Assets (MiCA) regulation. The paper, released on Wednesday, notes that while MiCA excludes services provided in a 'fully decentralized manner without any intermediary,' many DeFi projects retain centralized features such as administrator keys, governance concentration, and control over user-facing interfaces. The MFSA seeks 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. The regulator also questions if regulated crypto firms should be required to conduct smart-contract audits, governance reviews, and risk assessments before integrating DeFi protocols. Additionally, the paper examines potential legal structures for DeFi projects, including decentralized autonomous organizations (DAOs) and segregated cell companies, as well as the role of 'guardian agents' that monitor and enforce compliance. The public consultation is open until July 10.

Key facts

• MFSA explores DeFi integration within MiCA, noting many DeFi projects retain centralized features.
• Regulator asks if decentralization should be treated as a spectrum, not binary.
• Proposes standard framework to determine when a DeFi protocol falls outside MiCA scope.
• Suggests mandatory audits and risk assessments before integrating DeFi protocols.
• Examines DAOs and guardian agents as potential legal structures for DeFi projects.

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