EU Regulatory Body Calls for Assessment of DeFi Lending Frameworks

The European Banking Authority has requested that the European Commission review new MiCA regulations concerning cryptocurrency firms that link customers to decentralized finance (DeFi) loans.

Its September 24 response advocates for a cost-benefit analysis of potential obligations for intermediated borrowing and lending, as well as crypto-asset service providers (CASPs) offering clients access to DeFi lending via interfaces or products.

A loan can operate on an on-chain protocol while a company supplies the application connecting the customer to it. The EBA’s recommendation brings that company-controlled pathway into the Commission’s review, which is a request to evaluate legislation; thus, the EBA’s response itself alters no lending rule.

The regulator stated that consumer risks prompted its call to examine this matter.

The EBA outlined two potential amendments. The first would incorporate intermediated crypto borrowing and lending into MiCA’s list of CASP services, while the second would establish requirements for CASPs facilitating access to DeFi lending protocols, whether through an interface or a product offering DeFi exposure.

The Commission must weigh the scale of these activities, retail participation, and the severity of the risks before deciding whether to pursue legislation.

Suitability tests could determine whether a customer should participate, while leverage limits and comprehensive disclosures might address borrowing risks.

Regarding DeFi access, the EBA proposed additional warnings that activity through a genuinely decentralized protocol may lack regulatory safeguards. It also suggested certifying lending protocols for resilience against cyberattacks.

A separate option concerns tokens whose issuers lack required MiCA authorization. The EBA stated that CASPs could be prohibited from intermediating or facilitating borrowing and lending involving assets meeting MiCA’s definition of an asset-referenced or e-money token but lacking an authorized issuer. This proposed restriction limits CASPs’ access to those lending activities.

Applications Connecting Users to DeFi Loans

MetaMask’s lending guide details in-app access to Aave stablecoin pools, including mobile steps for depositing tokens. Aave’s access guide indicates users can reach the protocol through its interface, other applications, or direct smart contract interaction.

These documents demonstrate how users can access lending infrastructure through various pathways.

Neither guide establishes whether MetaMask’s feature is available to EU customers or how a named operator would be classified under a future CASP rule. The EBA’s proposal specifically discusses CASPs that facilitate access.

Future lawmakers will still need to define that activity and determine how to treat direct smart contract use. Depending on those decisions, an application could face checks or warnings at its entry point while a protocol continues executing loans on-chain.

The Commission’s targeted consultation closes on September 30 at 11:59 p.m. Central European Summer Time. Feedback will inform its report on MiCA’s application and crypto-market developments.

The Commission noted it may accompany that report with a legislative proposal if warranted. Until then, the EBA’s proposals signal a potential access and compliance boundary, with its scope and requirements still to be determined.

The EBA’s document also highlights why an access rule could differ across products. It asks the Commission to consider the nature and scale of an activity, the extent of retail participation, and the materiality of its risks.

The response mentions an interface providing protocol access, a service intermediating a loan, and a product offering DeFi exposure. Any future measure would need to translate those distinctions into clear obligations for firms and customers, including the checks and disclosures attached to each route.

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