EU Targets $54 Billion DeFi Sector with New Regulatory Measures

The European Union (EU) is taking aim at the decentralized finance (DeFi) sector, which has grown to $54 billion in size. According to a recent policy review by the European Banking Authority (EBA), DeFi lending and borrowing should be regulated under the MiCA framework.

The EBA crafts policies and regulates the EU-wide banking sector to ensure financial stability and user protection. However, the watchdog has identified potential consumer protection risks in DeFi lending, including over-leverage, contagion risks, hacks, and fraud.

To mitigate these risks, the EBA proposes leverage caps, disclosure requirements, and cyber resilience-based certification for DeFi protocols. The proposed rules could also bar unlicensed stablecoins like USDT from DeFi lending.