DeFi’s exemption from MiCA regulation may fade as an update targets protocols with centralized components. The sector could split between hybrid and DeFi models.
New regulations in the European Union may soon force decentralized finance (DeFi) protocols to make tough decisions.
At the heart of the issue is the tendency of many DeFi protocols to have centralized front-ends and intermediaries.
The EU’s Markets in Crypto-Assets Regulation (MiCA), which will come into full force by the end of 2024, will require DeFi protocols to adhere to the same licensing and Know Your Customer (KYC) requirements as traditional financial services firms — a burden many DeFi protocols may be unable or unwilling to bear.
