Malta Proposes New Category for Decentralized Autonomous Organizations

Malta's financial regulator has proposed a new legal category for decentralized autonomous organizations (DAOs) as part of a consultation on how to regulate decentralized finance (DeFi) under the European Union's crypto framework.

The proposal introduces the concept of 'software-based organizations,' which would cover DAOs and other blockchain-based entities governed primarily through software. This category aims to provide a legal structure that distinguishes between the organization itself and the protocols and code it operates.

The regulator argued that separating these elements could help address governance and accountability issues that continue to emerge across DeFi projects. The consultation also noted that fully decentralized services generally remain outside the scope of the European Union's Markets in Crypto-Assets regulation, known as MiCA.

Malta's proposal attempts to address questions that have become more pressing as regulators examine how DeFi systems operate in practice. Recent research has added to those concerns, including a working paper from the European Central Bank that found governance and decision-making across four major DeFi protocols remained concentrated among a limited group of participants.