European trade body warns against the exclusion of DeFi from MiCA

The trade body recommended creating a taxonomy for the DeFi ecosystem and a consistent regulatory framework along with different levels of centralization.

The Association for Financial Markets in Europe (AFME), an industry advocacy group that represents wholesale market participants in Europe, called for the inclusion of the decentralized finance (DeFi) sector within the recently passed Markets in Crypto-Assets (MiCA) regulations.

MiCA is considered the first potential piece of comprehensive crypto legislation and is set to go into effect in December 2024. However, the crypto legislation excludes certain aspects of the crypto ecosystem, including DeFi and nonfungible tokens. The AFME, in its paper addressed to the Europen Council, noted that the exclusion of DeFi could create unintended risks to financial stability and potential knock-on impacts:

“While as noted by the Financial Stability Board (FSB) the current overlap of DeFi and Traditional Finance (TradFi) is not yet significant, this should be actively monitored and managed.”

The paper recommended that the European Union should come up with a taxonomy for DeFi activities and digital assets with a risk-based approach. In terms of governing a decentralized ecosystem like DeFi, the trade body suggested a consistent regulatory framework along with different levels of centralization.

Cointelegraph reached out to AFME for comments on the issue but didn’t immediately get a response..

The trade body added that its request shouldn’t be seen as a definitive solution but rather a discussion on building the “foundational piece of work to further explore some of the technical issues posed by this new area of digital finance, as well as raise some initial proposals on how DeFi could be addressed from a regulatory standpoint.”

The trade body aims to open an initial discussion across the industry on this topic and to achieve innovative policy solutions for DeFi with both the public and private sectors.

MiCA is currently in the consultation stage, during which the EU will launch a three-part consultation process starting in July. The measures and suggestions collected during the consultation phase will be subject to approval by the European Commission, European Parliament and European Council.

Magazine: Best and worst countries for crypto taxes — plus crypto tax tips