Brussels Ponders Regulation for Lending Vaults in DeFi
The European Commission has asked stakeholders to weigh in on areas left outside of the original Markets in Crypto Assets (MiCA) framework. Specifically, they are considering whether to bring decentralized finance (DeFi) and crypto lending and borrowing within regulatory scope.
MiCA currently excludes crypto asset services that are provided in a 'fully decentralized manner,' but this does not necessarily apply when part of an activity is performed in a decentralized way. Lending vaults, which can channel billions of dollars into onchain credit markets without looking like conventional lending, have a legal status that depends on non-binding interpretations.
The law pertaining to vaults is unclear, according to EU digital assets lawyer and partner at Digital & Analogue Partners Yuriy Brisov. He notes that 'EU law has no category called a 'vault.' A lawyer therefore defines it the way a regulator would qualify it: by function, not by label.'
Brisov emphasizes that vaults can perform economic functions of lending while spreading other functions over smart contracts and multiple participants rather than a single company. If Brussels decides to bring lending within regulatory scope, this could have significant implications for DeFi protocols and the people behind them.