The Maltese regulator proposes evaluating DeFi projects on a decentralization scale in the context of MiCA.
The Malta Financial Services Authority (MFSA) has initiated a public consultation aimed at clarifying approaches to regulating decentralized finance (DeFi) projects under the European MiCA regulation. This is an important step that could set the direction for the entire EU jurisdiction.
The key thesis put forward by the regulator is the rejection of a binary classification of "decentralized vs. centralized." Instead, the MFSA proposes considering decentralization as a spectrum. This means that protocols with even partially centralized elements—such as the presence of administrative keys, a high concentration of governance votes, the ability to update smart contracts, or control over the user interface—may be deemed to fall under MiCA.
This approach fundamentally changes the logic of regulation. Previously, many DeFi protocols declared full decentralization to avoid licensing requirements. Now, the regulator intends to examine the actual governance structure. A project with a multisig controlled by three founders, or with the ability to forcibly update contracts, will no longer be able to appeal to "pure decentralization."
Additionally, the MFSA is seeking market participants' opinions on the need to introduce mandatory requirements for regulated crypto companies. This includes conducting mandatory smart contract audits, governance audits, and risk assessments before integrating any DeFi protocols into their products or services.
My analysis. Malta's initiative is timely and rational. Abandoning the binary approach is the only way to effectively regulate DeFi without stifling innovation. However, the main question remains open: who will determine the "degree of decentralization" for each specific protocol, and how transparent will these criteria be? Without a clear assessment methodology, we risk ending up not with regulation, but with arbitrary decisions.