EU Regulators Weigh In on Lending Vaults in MiCA Review

The European Commission is reviewing its Markets in Crypto Assets (MiCA) framework to address gaps in regulating decentralized finance (DeFi) and crypto lending/borrowing. The consultation aims to clarify the regulatory treatment of 'lending vaults,' on-chain structures that can distribute assets into credit markets while avoiding traditional lender hallmarks.

Lending vaults are difficult to classify due to their modular contract logic, which separates economic functions from operational roles. This has led to uncertainty about who is responsible and what should be regulated.

Regulators are cautioned against using a broad 'decentralization' test to decide whether regulation applies. Instead, they suggest focusing on structural and control-based criteria to determine the applicability of regulations.