Key Facts

• The Malta Financial Services Authority (MFSA) has published a discussion paper exploring how decentralized finance (DeFi) could fit within the European Union's Markets in Crypto-Assets (MiCA) framework, focusing on governance, accountability, and the meaning of "full decentralization."
• The MFSA notes that while MiCA excludes cryptocurrency services provided in a "fully decentralised manner without any intermediary," many DeFi projects retain centralized features such as administrator keys, governance concentration, protocol upgrade rights, and control over user-facing interfaces.
• The regulator is seeking feedback on whether decentralization should be assessed as a spectrum rather than a binary concept and whether a standardized framework should be developed to determine when a protocol falls outside MiCA's scope.
• The discussion paper also asks whether regulated crypto firms should be required to conduct smart-contract audits, governance reviews, and risk assessments before integrating DeFi protocols into their services.
• The MFSA's paper outlines potential legal structures for DeFi projects, including decentralized autonomous organizations (DAOs) and segregated cell companies, and examines guardian agents, which are mechanisms with a degree of automation that monitor, evaluate, and constrain the behavior of other autonomous systems.