Europe gears up to regulate DeFi in 2026 as MiCA leaves sector in limbo

European lawmakers have yet to define “decentralization,” even as regulators begin preparing for decentralized finance (DeFi) to become a key focus of crypto policy in 2026.

The world’s first comprehensive regulatory framework for the crypto industry, the Markets in Crypto-Assets Regulation (MiCA), went into effect on Dec. 30, 2024. Among its aims are to boost investor protection, prevent fraud and address stablecoin reserve management.

Still, as MiCA enters its final implementation phase, policymakers are shifting their attention to regulating DeFi, where many questions remain unresolved, according to Vyara Savova, senior policy lead at the European Crypto Initiative (EUCI).

Speaking during Cointelegraph’s Chain Reaction X Spaces show on June 4, Savova said DeFi protocols remain in regulatory limbo.

The framework’s implementation leaves ambiguity around DeFi protocols, as “DeFi is theoretically outside the scope of MiCA,” Savova said, adding:

“No one actually knows what EU policymakers mean by DeFi.”

Savova said that starting around mid-2026, authorities in the bloc will start interpreting how to legally define decentralization.

Related: SEC crypto staking guidance ‘major step forward’ for US: Crypto Council

The initial MiCA framework received significant criticism for its gaps regarding decentralized protocols, as it required DeFi platforms to adhere to the same licensing and Know Your Customer (KYC) requirements as traditional financial services firms. 

However, a provision to the bill, Recital 22, mentioned that fully decentralized crypto-asset service providers “should not fall within the scope of this Regulation.”

Related: Bitcoin reserve, stablecoin regulations big 2025 market catalysts, says VC

While MiCA’s final implementation went live at the end of 2024, lawmakers are still conducting revisions every 12 to 18 months related to potential gaps in the regulation.

Yet despite many previous calls from Christine Lagarde, president of the European Central Bank, the MiCA II framework will not be moving forward, according to Marina Markezic, executive director and co-founder of EUCI:

“You have probably heard about a potential MiCA II. It’s not happening.”

She added that ongoing discussions about stablecoins may result in targeted legislative updates rather than a full sequel to MiCA.

The EU has yet to roll out new Anti-Money Laundering rules that restrict the use of private coins and anonymous crypto accounts. Those provisions are scheduled to take effect in 2027.

Magazine: Crypto wanted to overthrow banks, now it’s becoming them in stablecoin fight