ESMA Proposes New Regulated Service for DeFi Access Providers
The European Securities and Markets Authority (ESMA) has proposed a new regulated crypto-asset service for firms that provide access to decentralized finance (DeFi) protocols in Europe. Instead of targeting the underlying software or permissionless networks themselves, ESMA is focusing on companies and intermediaries that give users access to DeFi through interfaces, transaction routing, or other customer-facing services.
The proposal aims to limit the scope of the DeFi exemption and prevent its use as a means of circumventing regulations. According to ESMA, the 'DeFi' exemption should be as narrow as possible.
ESMA also suggested stricter regulations for marketing by influencers and third parties, improved transparency in costs, and proportionate requirements for staking, borrowing, and lending. The authority is seeking greater powers to take down fraudulent websites, seize cryptoassets linked to market manipulation or terrorist activities, and impose limitations on exchanges of stablecoins with non-compliant status.
The proposal has the potential to transform the method in which exchanges, wallet applications, and other intermediaries link users to decentralized finance in Europe. The effect will certainly extend beyond Europe, as the Financial Stability Board has warned that different rules applied by countries can make cross-border monitoring more difficult.