Malta’s financial regulator has published a discussion paper outlining a potential legal framework for decentralized finance (DeFi), including the recognition of decentralized autonomous organizations (DAOs), as European policymakers continue to grapple with the regulation of blockchain-based financial services.

On June 12, the Malta Financial Services Authority (MFSA) launched a public consultation on DeFi under the European Union’s Markets in Crypto Assets (MiCA) Regulation. In the paper, we encourage industry feedback by July 10 and propose a fresh legal category for so-called “software-based organizations” that would include DAOs and other software-governed DeFi entities.

Rather than treating DAOs as a stand-alone legal concept, the MFSA suggests considering them as a type of software-based organization, separating the legal framework that governs the organization itself from the rules that govern its underlying protocol and software.

The discussion paper builds on Malta’s long-standing role in the digital assets industry following the introduction in 2018 of one of the first comprehensive cryptocurrency regulatory frameworks in the region. Stressing that fully decentralized services generally fall outside the scope of MiCA, the regulator argues that many DeFi projects retain centralized functions, complicating claims of decentralization and raising questions about regulatory liability.

“MiCA excludes fully decentralized models from its regulatory scope, which means that projects without intermediaries and central control may not require compliance with MiCA,” the document says.

The MFSA defines the scope of the DeFi discussion paper. Source: MFSA

Related: DAOs may have to abandon decentralization in favor of judicial institutions

EU regulators are increasingly turning their attention to DeFi

The Malta Discussion Paper comes in the context of wider efforts across the European Union to clarify how decentralized finance and decentralized autonomous organizations should be treated under MiCA.

In March, a European Central Bank working paper found that governance and control in the four main DeFi protocols remain highly concentrated, suggesting that many projects may struggle to qualify as “fully decentralized” and therefore fall outside the scope of MiCA.

The debate continued in May when the European Commission launched a targeted review of MiCA, asking for views on issues such as interest payments on stablecoins, the treatment of DeFi, and whether gaps in the framework warrant additional regulation.

However, not everyone believes that a fresh set of DeFi regulations is necessary. Speaking to Cointelegraph at the WAIB Summit in Monaco earlier this month, European Commission advisor Peter Kerstens said policymakers should prioritize integrating tokenization into the broader digital asset framework, rather than pursuing a second DeFi-focused version of MiCA.

European Commission advisor Peter Kerstens (right) talks to Zoltan Vardai from Cointelegraph. Source: WAIB Summit 2026

Related: Crypto companies face an EU cut-off on July 1 after the end of the MiCA grace period