The Association for Financial Markets in Europe (AFME), an industry advocacy group representing wholesale market participants in Europe, has called for the inclusion of the decentralized finance (DeFi) sector within the markets in crypto assets (MiCA) regulations recently passed in Europe.
MiCA is considered the first comprehensive crypto legislation set to take effect in December 2024. However, it excludes certain aspects of the crypto ecosystem, including DeFi and non-fungible tokens (NFTs). In a paper addressed to the European Council, AFME highlighted that the exclusion of DeFi could create unintended risks to financial stability and have knock-on impacts.
The trade body recommended that the EU develop a taxonomy for DeFi activities and digital assets using a risk-based approach. It also suggested implementing a consistent regulatory framework for governing decentralized ecosystems like DeFi, with different levels of centralization.
AFME emphasized that its request should be viewed as a starting point for discussions on how to address DeFi from a regulatory standpoint, rather than a definitive solution. The trade body aims to initiate an industry-wide conversation and collaborate with both the public and private sectors to find innovative policy solutions for DeFi.
MiCA is currently in the consultation stage, and the European Union plans to launch a three-part consultation process starting in July. The measures and suggestions collected during the consultation phase will undergo approval by the European Commission, European Parliament, and European Council.
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