Europe starts regulating DeFi – What investors need to know now!

Europe starts regulating DeFi – What investors need to know now!

The regulation of decentralized financial services (DeFi) is increasingly becoming the focus of European legislators. Loud Cointelegraph It is essential that the term “decentralization” is explicitly defined. This issue is expected to play a central role in crypto regulation in 2026, while the comprehensive Markets in Crypto-Assets (MiCA) regulatory framework is scheduled to come into force as early as December 30, 2024.

MiCA aims to improve investor protection and prevent fraud. The management of stablecoin reserves is also regulated. Policymakers have already noticed that attention is being diverted from traditional crypto assets to DeFi protocols. Vyara Savova from the European Crypto Initiative (EUCI) points out that these protocols in their current form still have many ambiguities.

Regulation and legal framework

However, the MiCA regulatory framework has already been criticized for its gaps when it comes to decentralized financial infrastructure. From mid-2026, EU authorities should begin to legally define what is meant by decentralization. DeFi platforms must also adhere to the same licensing and anti-money laundering requirements as traditional financial services providers, which means they must deal with KYC (Know Your Customer) requirements.

This leads to the consideration that fully decentralized crypto asset service providers should, in theory, not fall under the MiCA framework. Recital 22 of the draft law explicitly mentions that a differentiated approach is needed here. It was also noted that targeted legislative updates may be necessary in the upcoming discussions about stablecoins.

Impact and future developments

In a further step, the EU plans to introduce new anti-money laundering regulations that will restrict the use of private coins and anonymous crypto accounts from 2027. These restrictive measures are part of a larger regulatory approach that also includes the MiCA regulation, which will apply to most crypto assets.

The MiCA regulation itself is seen as essential to create legal certainty for innovations in the area of ​​distributed ledger technology. Basic provisions, in particular on asset-referenced cryptoassets and e-money tokens (stablecoins), are scheduled to come into force as early as July 2024, while the majority of the regulations will become binding from the beginning of 2025. Cryptoasset providers are required to submit a white paper containing necessary information about the issuer and the cryptoasset and must obtain approval from national regulatory authorities.

In conclusion, the regulation of DeFi and the introduction of the MiCA regulation could significantly contribute to creating a solid legal foundation for the crypto market in Europe. In addition, due to the increasing number of users and the development of new technologies, European supervision should be further strengthened to ensure that innovations do not come at the expense of investor protection.