The Malta Financial Services Authority (MFSA) is seeking feedback on whether decentralization should be treated as a spectrum rather than a binary condition.
The regulator is exploring how decentralized finance (DeFi) could be incorporated into the European Union’s Markets in Crypto-Assets (MiCA) framework, with a focus on governance, accountability, and defining what constitutes “fully decentralized” systems.
In a discussion paper released Wednesday, the MFSA noted that while MiCA excludes crypto services operating in a fully decentralized manner without intermediaries, many DeFi protocols still contain centralized elements such as admin keys, governance concentration, upgrade permissions, and control over user interfaces.
The authority is asking whether a spectrum-based approach would better capture levels of decentralization and whether standardized criteria should be developed to determine when protocols fall outside MiCA’s scope.
It also highlighted ongoing uncertainty in EU regulation, as DeFi lacks a clear threshold for determining when decentralization is sufficient to qualify for exemption.
The MFSA further proposed that regulated crypto firms may need to conduct smart contract audits, governance reviews, and risk assessments before integrating DeFi protocols into their offerings.
Beyond MiCA, the paper outlines potential legal structures for DeFi projects, including decentralized autonomous organizations (DAOs) and segregated cell companies.
It also introduces “guardian agents,” described as automated systems designed to monitor and constrain autonomous protocols to ensure compliance with defined risk and operational limits.
The consultation remains open for public comment until July 10.
