Malta Proposes Framework for Software-Based Organizations in DeFi Regulation

Malta's financial regulator has released a discussion paper outlining a potential framework for decentralized finance (DeFi) regulation, including recognition of decentralized autonomous organizations (DAOs). The Malta Financial Services Authority (MFSA) invites industry feedback through July 10 on the proposed legal category for 'software-based organizations,' which would encompass DAOs and other software-governed DeFi entities.

The paper argues that while fully decentralized services may fall outside the scope of European Union's Markets in Crypto-Assets (MiCA) regulation, many DeFi projects retain centralized features that raise regulatory questions. The MFSA suggests separating the legal framework governing the organization itself from the rules governing the underlying protocol and software.

The discussion paper builds on Malta's history as a pioneer in crypto regulation, having introduced one of the region's first comprehensive frameworks in 2018. EU regulators are increasingly turning their attention to DeFi, with some arguing that a new rulebook is necessary to clarify treatment under MiCA. However, not everyone agrees, European Commission adviser Peter Kerstens believes policymakers should prioritize integrating tokenization into a broader digital asset framework rather than pursuing a second version of MiCA focused on DeFi.