The financial authority of Malta has proposed a new legal classification for decentralized autonomous organizations (DAOs) as part of a wider consultation aimed at enhancing the regulatory framework for decentralized finance (DeFi) within the European Union’s crypto regulations.
Summary
- The Malta Financial Services Authority (MFSA) has proposed a new category called “software-based organization,” which includes DAOs and other DeFi projects.
- The regulator noted that many DeFi initiatives might not be fully decentralized as per MiCA due to centralization in governance.
- This public consultation is part of the EU’s ongoing efforts to review oversight of DeFi in preparation for MiCA’s enforcement deadline on July 1, 2026.
A discussion paper issued by the MFSA on June 12 has launched a public consultation running until July 10, inviting feedback from the industry on a proposed framework for DeFi operations.
The proposal introduces the term “software-based organizations” to encompass DAOs and other blockchain projects that are predominantly governed by software.
Rather than creating a separate legal framework exclusively for DAOs, the MFSA indicated that software-based organizations could provide a legal structure that differentiates the organization from the protocols and code it operates.
This distinction, according to the regulator, may help address governance and accountability issues surfacing within DeFi projects.
Malta seeks a legal framework for software-governed entities
In its consultation paper, the MFSA highlighted that fully decentralized services generally fall outside the EU’s jurisdiction under the Markets in Crypto-Assets regulation. However, it also noted that numerous projects claiming to be decentralized still exhibit elements of centralized control, complicating their regulatory categorization.
“MiCA excludes fully decentralised models from its regulatory scope, indicating that projects without intermediaries or central control may not be subject to MiCA compliance.”
Building on Malta’s proactive approach to digital asset regulation, highlighted by its 2018 crypto framework, this proposal aims to tackle the increasingly pressing questions as regulators explore the functioning of DeFi systems.
Recent studies have underscored these concerns. A working paper published by the European Central Bank in March revealed that governance and decision-making for four significant DeFi protocols were concentrated among a limited group of individuals.
The ECB’s findings suggest that this concentration could prevent certain projects from being classified as fully decentralized under MiCA.
Increasing EU scrutiny of DeFi as MiCA enforcement approaches
Throughout Europe, policymakers are evaluating whether MiCA adequately addresses the intricacies of decentralized finance. In May, the European Commission launched a targeted review of the regulation, seeking opinions on various aspects, including stablecoin interest payments, DeFi operations, and potential regulatory inadequacies that might require additional rules.
This discussion arises as EU regulators prepare for the final phase of MiCA implementation. Previously reported by crypto.news, the transition period is set to conclude on July 1, 2026, after which unlicensed crypto exchanges, brokers, and wallet providers will be barred from serving clients within the bloc.
The European Securities and Markets Authority clarified that firms operating without a MiCA license after the deadline would be in violation of EU law.
ESMA further stated that providers lacking authorization must create orderly wind-down plans and aid clients in transferring assets to licensed firms or self-hosted wallets.
Data from Hogan Lovells illustrates the scope of this transition. The law firm reported that Europe had over 3,000 virtual asset service providers in 2024, yet by May 2026, only 194 authorized crypto-asset service providers had received approval, including credit institutions.
In this backdrop, Malta’s consultation feeds into the ongoing dialogue on how European regulators should approach entities that operate via code while still exhibiting discernible governance structures.
Disclosure: This article does not comprise investment advice. The content and materials found on this page are intended solely for educational purposes.
