The Association of Financial Markets Europe (AFME), a trade body representing European wholesale market participants, has called for decentralized finance (DeFi) to be included in the recently adopted Markets in Cryptoassets (MiCA) regulations. MiCA, which is set to come in to force in December 2024, is considered the first potentially comprehensive crypto legislation. However, it currently excludes certain aspects of the crypto ecosystem, such as DeFi and non-fungible tokens (NFTs). AFME submitted a proposal to the European Council , highlighting that excluding DeFi could pose unintended risks to financial stability and have potential knock-on effects.
AFME's submission emphasized the need for a risk-based approach to classify DeFi activities and digital assets. The trade body recommended adopting a consistent regulatory framework with varying degrees of centralization to govern the decentralized ecosystem of DeFi. They acknowledged that the request should be seen as A starting point for discussion and the exploration of technical issues and policy solutions related to DeFi.
The paper also referred to the Financial Stability Board's recognition that the overlap between DeFi and traditional finance (TradFi) is currently not significant. However, AFME stressed the importance of actively monitoring and managing this overlap to mitigate potential risks. By advocating for the inclusion of DeFi in the regulatory framework, AFME aims to initiate industry-wide discussions and collaborate with public and private sectors to develop innovative policy solutions.
MiCA is currently in the consultation phase, and the European Union (EU) will commence a three-part consultation process starting in July. During this phase, measures and proposals collected from stakeholders will be reviewed by the European Commission, the European Parliament, and the European Council. AFME's proposal seeks to contribute to these consultations and ensure that DeFi is adequately addressed in the regulatory landscape for cryptoassets in the EU.
