EU to Define Decentralization Legally by Mid-2026

The European Union has announced plans to commence the legal definition of decentralization by mid-2026. This initiative is part of a broader effort to ensure that cross-border transactions comply with various regulatory regimes, thereby enhancing the efficiency and security of financial operations within the EU. The move towards decentralization is expected to reduce the reliance on intermediaries, which are traditionally responsible for securing and maintaining these systems. This shift aligns with the EU's broader strategy to promote digital sovereignty and compliance with regulatory standards.

The legal definition of decentralization is a significant step towards modernizing the EU's financial infrastructure. By mid-2026, the EU aims to have a clear framework that outlines the principles and guidelines for decentralized systems. This framework will likely include rules for board membership and renewal, ensuring that governance structures are transparent and accountable. The implementation of these changes is expected to enhance the overall efficiency and security of financial transactions within the EU.

The EU's decision to define decentralization legally is also in line with its efforts to promote digital sovereignty. By establishing clear guidelines for decentralized systems, the EU aims to reduce geopolitical risks and ensure compliance with regulatory standards. This move is expected to have a positive impact on the EU's financial sector, as it will provide a more secure and efficient environment for financial transactions. The EU's initiative is also expected to encourage other regions to adopt similar measures, thereby promoting a more integrated and secure global financial system.

Vyara Savova, Policy Lead at the European Crypto Advocacy Organization, stated that the current Markets in Crypto-Assets Regulation (MiCA) theoretically exempts "fully decentralized" protocols from regulation, but specific criteria for this determination are still unclear. The EU plans to legally define the concept of decentralization starting in mid-2026 and is currently working on regulatory revisions in specific areas such as stablecoins. This move is expected to provide clarity and reduce the regulatory gray area that currently exists for decentralized finance (DeFi) protocols.