The European Parliament has called on the European Commission to assess gaps in the current crypto regulatory framework, signaling a potential expansion of oversight beyond the Markets in Crypto-Assets (MiCA) regulation.
Just days after MiCA became fully applicable on July 1, lawmakers emphasized the need to examine areas outside the scope of the existing rules, particularly those involving decentralized finance (DeFi) and staking. MiCA established a framework for centralized crypto-asset service providers, but large portions of the on-chain market remain unregulated. The lack of oversight in decentralized systems, which operate without traditional intermediaries, introduces complexities in monitoring compliance, ensuring transparency, and mitigating risks such as illicit activity or market manipulation.
The report, titled Digital Assets – Challenges for the Competitiveness and Integrity of the EU Financial System, highlights two main areas of concern: DeFi lending and borrowing, which raise concerns about risks, and staking and yield products, which require clearer disclosure, risk-management, and consumer-protection measures. DeFi protocols, which often function as automated financial services, can inadvertently facilitate unregulated lending practices that mirror shadow-banking activities. These practices may lack the safeguards present in traditional banking, such as capital adequacy requirements or consumer safeguards, potentially exposing users to significant financial harm if protocols fail or are exploited.
NFTs and tokenized financial assets also fall under scrutiny, with their regulatory alignment depending on their structure. A key concern is the risk of fragmentation. If EU member states develop divergent approaches to regulating DeFi, staking, or NFTs, the single-market framework MiCA aimed to create could be undermined. They urge harmonized rules to prevent regulatory silos and ensure that cross-border operations within the EU are not subject to conflicting legal standards, which could hinder innovation and create opportunities for regulatory arbitrage.
For staking and yield products, the report shows the need for standardized frameworks to address issues such as the volatility of returns, the potential for scams, and the lack of liquidity in certain tokenized assets. These products often rely on smart contracts, which, while programmable, can contain vulnerabilities or be exploited by malicious actors. Without clear guidelines, users may face unpredictable outcomes, including the loss of funds due to technical failures or fraud.
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The European Parliament’s emphasis on euro-based stablecoins reflects broader strategic considerations. The 128% surge in the market cap of stablecoins like EURC, EURCV, and EURI shows their growing role as tools for cross-border payments and financial inclusion. These stablecoins, pegged to the euro, offer advantages such as reduced reliance on dollar-dominated systems, which can be more susceptible to U.S. monetary policy fluctuations. Their adoption by European institutions could enhance the efficiency of transactions, reduce currency conversion costs, and align with the Eurozone’s economic goals.
The call for expanded oversight extends to the broader digital asset ecosystem. The report notes that the absence of a unified regulatory approach may deter institutional investors, who require clear legal frameworks to mitigate risks. By addressing gaps in the current system, the European Union aims to position itself as a global leader in responsible innovation, balancing the need for regulation with the promotion of technological advancement.
For brokers and institutional firms, the evolving regulatory setting necessitates proactive adaptation. Early compliance with MiCA’s requirements, such as Know-Your-Customer (KYC) protocols and anti-money laundering (AML) measures, may provide a competitive edge as new regulations are introduced. These firms are encouraged to engage with policymakers to shape future frameworks, ensuring that their operational needs are considered while maintaining high standards of security and transparency.
The European Commission’s assessment of gaps in the regulatory framework is expected to influence the development of supplementary legislation. Potential measures may include enhanced disclosure requirements for DeFi platforms, standardized risk assessments for tokenized assets, or the establishment of a European stablecoin authority to oversee compliance. These steps could help address systemic risks while supporting a more resilient and inclusive financial ecosystem.