EBA Recommends EU Regulate Crypto Lending Involving DeFi Protocols

The European Banking Authority (EBA) has recommended that the European Commission consider regulating crypto-asset lending, including activity involving decentralized-finance protocols and services that provide access to them. This recommendation is part of the EBA's response to the Commission's targeted consultation on reviewing the Markets in Crypto-Assets Regulation (MiCA).

The EBA cited potential regulatory-arbitrage concerns due to stablecoin lending creating yield opportunities while MiCA prohibits issuers and crypto-asset service providers from offering interest on certain tokens. The authority also identified risks involving misleading disclosures, excessive leverage, contagion, hacks, and fraud.

Possible safeguards include leverage limits, disclosure requirements, and cyber-resilience measures. However, the recommendation does not establish these measures as adopted EU rules.