Malta’s financial regulator is moving to clarify how decentralized finance, DAOs, and software-governed crypto projects should be treated under Europe’s MiCA regulation.
The Malta Financial Services Authority, known as the MFSA, has released a new discussion paper proposing a legal framework for decentralized finance, with a particular focus on decentralized autonomous organizations and other software-based organizations.
The consultation, opened on June 12, invites industry feedback until July 10. It comes as regulators across the European Union continue to examine how DeFi platforms, DAO governance, and blockchain-based financial services should fit into the wider Markets in Crypto-Assets framework.
Malta Looks to Define Software-Governed Organizations
The MFSA’s proposal introduces a new legal category called “software-based organizations.” This would include DAOs and other crypto entities that are governed primarily through code, smart contracts, or decentralized software systems.
Instead of treating DAOs as a completely separate legal concept, Malta’s regulator suggests placing them under this broader software-based organization category. The goal is to separate the legal treatment of the organization itself from the rules that apply to the underlying blockchain protocol or software.
This approach could help regulators better understand who, if anyone, should be held accountable when a DeFi project is not fully decentralized in practice.
Why DeFi Decentralization Is Under Review
The MFSA noted that fully decentralized services generally fall outside the scope of MiCA. Under the current framework, projects with no intermediaries or central control may not need to comply with MiCA requirements.
However, the regulator argues that many DeFi projects still have centralized features. These may include concentrated governance power, core developer control, admin keys, treasury management, or decision-making structures that are not as decentralized as marketed.
This creates a key regulatory challenge. If a project claims to be decentralized but still relies on identifiable people, teams, or governance groups, regulators may question whether it should be exempt from crypto asset regulation.
The MFSA discussion paper states that MiCA excludes fully decentralized models from its regulatory scope, meaning projects without intermediaries or central control may not fall under MiCA compliance rules.
Malta Builds on Its Crypto Regulation History
Malta has long positioned itself as one of Europe’s more active jurisdictions for digital asset regulation. In 2018, the country introduced one of the region’s first comprehensive crypto regulatory frameworks, giving it an early role in shaping blockchain and crypto policy.
The new DeFi consultation continues that direction by trying to provide legal clarity for emerging Web3 structures, including DAOs, decentralized protocols, and software-governed financial services.
For crypto companies, the proposal could offer a clearer path for understanding whether their DeFi products fall outside MiCA or require some form of regulatory oversight.
EU Regulators Increase Focus on DeFi and DAOs
Malta’s proposal is part of a broader European push to clarify the future of DeFi regulation under MiCA.
In March, a European Central Bank working paper found that governance and control across four major DeFi protocols remained highly concentrated. The findings suggested that many decentralized finance projects may struggle to prove they are fully decentralized.
This matters because MiCA’s treatment of DeFi depends heavily on whether a project operates without intermediaries or central control.
In May, the European Commission also launched a targeted review of MiCA. The review asked for feedback on several key crypto policy issues, including stablecoin interest payments, DeFi regulation, and whether the current MiCA framework leaves important gaps.
Not Everyone Supports a New DeFi Rulebook
Despite growing regulatory attention, not all policymakers believe Europe needs a separate DeFi-focused version of MiCA.
Speaking at the WAIB Summit Monaco earlier this month, European Commission adviser Peter Kerstens said regulators should focus on integrating tokenization into a broader digital asset framework instead of creating a second MiCA framework specifically for DeFi.
His comments highlight an ongoing debate in Europe’s crypto policy landscape. Some regulators want clearer rules for decentralized finance and DAOs, while others believe the priority should be building a more unified digital asset regulation system.
What This Means for the DeFi Industry
Malta’s DeFi rulebook proposal could become an important step in shaping how DAOs and software-governed crypto projects are regulated in Europe.
If adopted, the framework may help determine when a DeFi project is truly decentralized and when it still has enough centralized control to fall under regulatory supervision.
For DeFi platforms, DAO communities, crypto founders, and Web3 investors, the message is clear: decentralization claims are likely to face closer scrutiny under the MiCA-era regulatory environment.
As the EU continues to refine its approach to crypto regulation, Malta’s consultation may influence how Europe balances innovation, investor protection, and accountability in decentralized finance.
