Malta Asks the Eternal Question: If a DAO Governs Itself in a Forest, Does MiCA Still Apply? 🌐

Malta's financial regulator has opened a public consultation on a proposed legal framework for decentralized finance, including a new designation for decentralized autonomous organizations. On June 12, the Malta Financial Services Authority (MFSA) published a discussion paper seeking industry feedback through July 10 under the European Union's Markets in Crypto-Assets (MiCA) regulation. The paper proposes a category of "software-based organizations" that would cover DAOs and other software-governed DeFi entities, separating the rules governing the organization itself from those governing the underlying protocol and software.

The MFSA acknowledged that fully decentralized services generally fall outside MiCA's scope, but argued that many DeFi projects retain centralized features that complicate claims of decentralization. "MiCA excludes fully decentralised models from its regulatory scope, meaning that projects without intermediaries or central control may not need to comply with MiCA," the paper states. The framework builds on Malta's 2018 introduction of one of the region's first comprehensive crypto regulatory regimes.

The proposal comes as EU regulators intensify their focus on DeFi. In March, a European Central Bank working paper reported that governance and control across four major DeFi protocols remained highly concentrated, suggesting many projects may not qualify as "fully decentralized" and could fall within MiCA's scope. In May, the European Commission launched a targeted review of MiCA soliciting feedback on stablecoin interest payments, the treatment of DeFi and potential gaps in the framework.

Not all EU officials are convinced a separate DeFi rulebook is needed. European Commission adviser Peter Kerstens, speaking at the WAIB Summit Monaco earlier this month, said policymakers should prioritize integrating tokenization into a broader digital asset framework rather than drafting a second version of MiCA focused on DeFi. The Commission has separately warned that crypto firms face a July 1 cutoff as the MiCA grace period ends, though Malta's paper does not address that transition directly.