EU Lawmakers to Focus on DeFi Regulation in 2026 Amid MiCA Uncertainty

European lawmakers are gearing up to focus on decentralized finance (DeFi) as a pivotal area of crypto policy in 2026. This shift comes as the Markets in Crypto-Assets Regulation (MiCA), which went into effect on Dec. 30, 2024, leaves the DeFi sector in a state of regulatory uncertainty. MiCA aims to bolster investor protection, prevent fraud, and address stablecoin reserve management. However, its implementation has left many questions unresolved, particularly regarding the definition of decentralization in DeFi protocols.

Vyara Savova, senior policy lead at the European Crypto Initiative (EUCI), underscored the ambiguity surrounding DeFi protocols under MiCA. She noted that while MiCA theoretically excludes DeFi from its scope, the lack of a clear definition of decentralization has left the sector in regulatory limbo. Savova explained that starting around mid-2026, authorities in the European Union will begin interpreting how to legally define decentralization, a process that is expected to shape the future regulatory landscape for DeFi.

The initial MiCA framework faced criticism for its gaps related to 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 in the bill, Recital 22, stated that "fully decentralized" crypto-asset service providers should not fall within the scope of the regulation. This provision has added to the confusion, as it remains unclear what constitutes "fully decentralized" in the context of DeFi.

Despite ongoing revisions to MiCA every 12 to 18 months, there are no plans for a MiCA II framework. Marina Markezic, executive director and co-founder of EUCI, confirmed that the MiCA II framework will not be moving forward. Instead, ongoing discussions about stablecoins may result in targeted legislative updates rather than a full sequel to MiCA. This shift in focus reflects the evolving nature of the crypto industry and the need for more nuanced regulatory approaches.

The EU is also preparing to implement new Anti-Money Laundering (AML) rules, which are scheduled to take effect in 2027. These rules will restrict the use of privacy coins and anonymous crypto accounts, further tightening the regulatory environment for the crypto industry. The implementation of these AML rules, along with the ongoing efforts to define decentralization in DeFi, will shape the future of crypto regulation in the EU.

In summary, the EU's preparations to regulate DeFi in 2026 come at a time when MiCA has left the sector in regulatory limbo. The lack of a clear definition of decentralization and the ongoing revisions to MiCA highlight the challenges faced by policymakers in regulating the rapidly evolving crypto industry. As the EU continues to grapple with these issues, the future of DeFi regulation remains uncertain, with targeted legislative updates and new AML rules expected to play a significant role in shaping the regulatory landscape.