Malta’s financial regulatory authority has released a discussion paper regarding a possible legal framework for decentralised finance (DeFi), which includes proposals to regulate and classify decentralised autonomous organisations (DAOs), as policymakers in Europe seek ways of regulating blockchain technology in the financial sector. The Maltese Financial Services Authority (MFSA) initiated a consultation process related to DeFi under the MiCA regulation of the EU on June 12. The discussion paper asks for responses from the industry until July 10 and suggests creating a novel classification of “software-based organisations,” including both DAOs and other DeFi platforms.
Consultation Explores Classification of DAOs and DeFi Platforms
Instead of considering DAOs as an independent legal entity, the MFSA recommends that they be viewed as a form of organisation that is based on software, where laws covering the organisation itself will be separated from laws covering the protocol and software used to create it. The discussion paper follows a tradition of Malta’s involvement in the digital asset sector since the country became one of the pioneers in cryptocurrency regulation in 2018.
However, while emphasising the fact that completely decentralised services are mostly exempt from MiCA regulation, the regulatory body highlights that there are many DeFi solutions that maintain some sort of centralisation, making their decentralisation claims questionable. “MiCA excludes fully decentralised models from its regulatory scope, meaning that projects without intermediaries or central control may not need to comply with MiCA,” the paper states.
Earlier this month, the New York State Department of Financial Services (NYDFS) and the European Banking Authority (EBA) agreed to sign a Memorandum of Understanding (MoU) that requires both entities to oversee cross-border stablecoin activities. The EBA stated that this deal is part of its responsibilities under the Markets in Crypto-Assets (MiCA) regulation, and it requires them to set out procedures and a set of principles for exchanging information and coordinating stablecoin supervisory activities, market trends, and risks between the EBA and NYDFS. Information that both entities will share includes stablecoins, total volume in circulation, and the number of holders.
The discussion paper issued by Malta arrives against the backdrop of a wider effort on the part of the EU to determine how decentralised finance and DAOs should be handled in relation to MiCA. In light of regulatory efforts to strike a balance between innovation and regulation, the discussion paper may have an impact on how DeFi is governed, organised, and regulated in the future.
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