The Association for Financial Markets in Europe (ASME), representing wholesale market participants in Europe, has urged the European Council to include the decentralized finance (DeFi) sector in the markets in crypto assets (MiCA) regulations recently passed by the European Union (EU). The European trade body is keen on seeing the inclusion of DeFi.
MiCA, slated to take effect in December 2024, is regarded as the first comprehensive crypto legislation. However, it currently excludes certain aspects of the crypto ecosystem, including DeFi and non-fungible tokens (NFTs). In a paper addressed to the European Council, the European Trade Body highlighted that the exclusion of DeFi could potentially give rise to unintended risks to financial stability and have wider repercussions.
The ASME paper acknowledged that while the Financial Stability Board (FSB) has noted that the overlap between DeFi and Traditional Finance (TradFi) is currently minimal, continuous monitoring and management are essential.
To address the concerns surrounding DeFi, the paper recommended that the EU develop a taxonomy for DeFi activities and digital assets using a risk-based approach. The trade body also proposed the establishment of a consistent regulatory framework with varying degrees of centralization to govern the decentralized DeFi ecosystem.
Emphasizing that their request does not present a definitive solution, ASME stated that it aims to initiate a discussion on laying the groundwork for further exploration of the technical issues posed by this new realm of digital finance. The trade body also put forth initial proposals on how DeFi could be regulated.
European Trade Body Launches Consultation on DeFi Regulation
In a bid to foster collaboration and devise groundbreaking policy solutions for the rapidly expanding decentralized finance (DeFi) sector, the European trade body has initiated a preliminary discussion among industry stakeholders.
The trade body, representing various organizations and companies within the European Union (EU), seeks to address the regulatory challenges posed by the burgeoning DeFi ecosystem. With the participation of both public and private sectors, this initiative aims to explore innovative approaches to ensure the responsible growth of DeFi while safeguarding investor protection and maintaining financial stability.
Dubbed the Markets in Crypto-Assets Regulation (MiCA), the regulatory framework is currently undergoing a consultation phase led by the European Union. This three-part consultation process, set to commence in July, marks a significant step toward establishing comprehensive guidelines for the DeFi sector.
During the consultation stage, stakeholders will have the opportunity to contribute their insights, proposals, and concerns regarding the regulation of DeFi activities. The feedback received will be carefully evaluated and considered by the European Commission, European Parliament, and European Council. Their approval will ultimately determine the framework’s final measures and suggestions.