Association for Financial Markets in Europe Urges Inclusion of DeFi in EU’s MiCA Regulation

Association for Financial Markets in Europe Urges Inclusion of DeFi in EU’s MiCA Regulation

The Association for Financial Markets in Europe (AFME) has issued a warning against the exclusion of decentralized finance (DeFi) from the European Union’s Markets in Crypto-Assets (MiCA) regulatory framework. In a paper titled “Decentralised Finance – Principles for building a robust digital economy,” the AFME emphasized the importance of incorporating DeFi within emerging regulatory frameworks.

According to the AFME, the exclusion of DeFi from MiCA could potentially lead to regulatory arbitrage and weaken the effectiveness of the new regulatory framework. The organization believes that it is crucial to actively monitor and manage the overlap between DeFi and Traditional Finance (TradFi) to prevent unintended risks to financial stability.

The AFME recognizes DeFi as a significant innovation within the financial system and describes current DeFi efforts as outsourced innovation and research and development labs for the formal financial system. To address the unique challenges posed by DeFi, the paper recommends that the EU develop a taxonomy to classify DeFi activities and digital assets. Such a taxonomy would facilitate the creation of a comprehensive regulatory solution.

Additionally, the AFME advocates for a risk-based approach to DeFi and calls for a consistent regulatory framework that encompasses varying levels of centralization. This approach would help strike a balance between promoting innovation and protecting financial stability.

By urging regulators to include DeFi in the MiCA regulatory framework and proposing measures to address its unique characteristics, the AFME aims to ensure the development of a robust digital economy within the EU.