Malta proposes legal framework for DAOs under MiCA regulation
In brief
- Malta Financial Services Authority opens DeFi consultation under EU's MiCA regulation through July 10.
- MFSA proposes new legal category for software-based organizations and DAOs with separated governance rules.
- DeFi projects retain centralized features that complicate decentralization claims and regulatory accountability.
The decentralization problem
The MFSA's core argument is straightforward: many DeFi projects retain centralized features that complicate claims of decentralization and raise questions about regulatory accountability. This tension sits at the heart of DeFi regulation across Europe. MiCA itself excludes fully decentralized models from its regulatory scope, meaning projects without intermediaries or central control may not need to comply. But if most DeFi projects aren't truly decentralized, that exemption becomes largely theoretical.
Malta has positioned itself as a crypto-forward regulator since introducing one of the region's first comprehensive crypto regulatory frameworks in 2018. This consultation extends that early-mover stance to the DeFi era.
Evidence of concentration
Recent research supports the regulator's skepticism. In March, a European Central Bank working paper found that governance and control across four major DeFi protocols remained highly concentrated. That finding undercuts the narrative that decentralized finance has achieved truly distributed governance.
The MFSA's proposal separates the legal framework governing the organization itself from rules governing the underlying protocol and software. This distinction could matter for accountability. A DAO might operate on-chain without a central operator, but the legal entity responsible for governance decisions could still face regulatory scrutiny.
Broader EU momentum
Malta's framework arrives as the European Commission broadens its DeFi regulatory review. The European Commission launched a targeted review of MiCA in May seeking feedback on issues including stablecoin interest payments, the treatment of DeFi, and whether gaps in the framework warrant additional regulation. The consultation reflects uncertainty about whether MiCA adequately covers the DeFi ecosystem or whether new rules are needed.
Not everyone favors a DeFi-specific approach. Peter Kerstens, European Commission adviser, said policymakers should prioritize integrating tokenization into a broader digital asset framework rather than pursuing a second version of MiCA focused on DeFi. That view suggests a more horizontal approach—one rulebook for all tokenized assets—rather than vertical DeFi-specific rules.
Malta's consultation runs until July 10. The feedback will inform whether the MFSA moves forward with the software-based organization category or refines the approach based on industry input.
Frequently asked questions
Why does Malta think many DeFi projects aren't truly decentralized?
The MFSA argues that many DeFi projects retain centralized features—like concentrated governance or core team control—that complicate claims of full decentralization. A March European Central Bank paper backed this up, finding governance and control across four major DeFi protocols remained highly concentrated.
How would Malta's software-based organization category work?
The MFSA proposes separating the legal framework governing the organization itself from rules governing the underlying protocol and software. This allows regulators to hold a legal entity accountable for governance decisions even if the protocol operates on-chain without a central operator.
Does MiCA currently regulate all DeFi projects?
No. MiCA excludes fully decentralized models from its regulatory scope, meaning projects without intermediaries or central control may not need to comply. However, the MFSA argues this exemption covers fewer projects than it should, since many DeFi projects retain centralized features.
