The European Union’s next step in crypto regulation should emphasize a comprehensive framework for tokenization and real-world digital assets rather than attempting to regulate decentralized finance (DeFi) through an updated Markets in Crypto-Assets Regulation (MiCA), an adviser involved in MiCA’s development said.
Peter Kerstens, one of the architects behind MiCA, explained that while the EU is currently reviewing MiCA through a public consultation process, the regulation itself is not outdated and will guide the crypto market’s legal landscape moving forward. MiCA will enter full effect soon, requiring crypto asset service providers operating within the EU to obtain a MiCA license or cease providing services.
Kerstens highlighted the inherent challenges in legislating DeFi protocols, noting that existing laws typically govern individuals or legal entities, not decentralized networks or software. Without clear representatives or centralized control figures, DeFi falls outside conventional regulatory reach. He questioned the need for specific DeFi regulation given the absence of identified problems in the sector.
The EU’s MiCA review process has nonetheless included DeFi as an area of interest, signaling the bloc’s awareness of emerging risks. Meanwhile, a European Central Bank working paper released earlier raised concerns about whether decentralized autonomous organizations (DAOs) truly maintain decentralization. The paper cited data showing the top holders of governance tokens in several major DeFi protocols control a vast majority of the supply, potentially undermining claims of full decentralization and challenging their regulatory exclusion under MiCA.
Still, Kerstens suggested that broader regulation aimed at tokenization—the process of representing real-world assets as digital tokens—could better serve the EU’s market framework ambitions than attempting to directly regulate decentralized systems. This approach aligns with the Commission’s public consultation launched earlier this year, inviting stakeholders to shape future policy beyond the current scope of MiCA.