David Edwards
European lawmakers are preparing to regulate decentralized finance (DeFi) as part of the European Union’s evolving crypto oversight, though a legal definition of “decentralization” remains elusive. With the Markets in Crypto-Assets Regulation (MiCA)—the first comprehensive crypto regulatory framework—entering its final implementation phase, policymakers are increasingly focused on addressing the regulatory ambiguity surrounding DeFi.
Enacted on December 30, 2024, MiCA seeks to enhance investor protection, reduce fraud, and enforce stablecoin reserve rules. However, as noted by Vyara Savova, senior policy lead at the European Crypto Initiative (EUCI), DeFi protocols remain outside its scope. During a June 4 Chain Reaction X Spaces session, Savova stated, “DeFi is theoretically outside the scope of MiCA. No one actually knows what EU policymakers mean by DeFi.”
The lack of clear regulatory guidance has left DeFi platforms operating in a gray zone. Although the framework includes Recital 22—stating that fully decentralized crypto-asset service providers should not fall under MiCA’s purview—implementation has nonetheless raised concerns due to overlapping requirements for licensing and Know Your Customer (KYC) protocols that were originally designed for traditional financial entities.
European authorities are expected to begin defining decentralization by mid-2026, marking a significant pivot in crypto regulation strategy. Yet despite past calls for a broader MiCA II framework, particularly from European Central Bank President Christine Lagarde, no sequel to MiCA is planned. Marina Markezic, executive director and co-founder of EUCI, confirmed: “You have probably heard about a potential MiCA II. It’s not happening.” Instead, targeted legislative revisions are expected, especially around stablecoin oversight.
The transition to DeFi regulation reflects the EU’s recognition of the growing significance of decentralized platforms in global finance and the need for regulatory clarity to ensure market stability while fostering innovation.
