The world's first comprehensive regulatory framework for the crypto asset market - the European Union's Markets in Crypto-Assets Regulation (MiCA) - has officially taken effect by the end of 2024, bringing a unified compliance framework to the rapidly developing crypto industry. However, as market participants gradually adapt to the changes brought by MiCA, EU regulatory authorities have quietly turned their attention to the more complex decentralized finance (DeFi) domain, planning to explicitly include it within the regulatory scope by 2026, signaling the arrival of a new stage of crypto regulation.
EU MiCA Takes Effect, DeFi Regulatory Definition Remains Unresolved
The full implementation of MiCA marks an important step for the EU in crypto asset regulation, aiming to enhance market transparency, protect investors, and ensure financial stability. However, for DeFi protocols, their regulatory status remains unclear within the MiCA framework. Vyara Savova, Senior Policy Lead at the European Crypto Initiative (EUCI), clearly pointed out this issue in a recent public discussion, stating that although MiCA theoretically places DeFi outside its scope, many key definitions and boundaries remain unresolved.
Savova further stated:
"Currently, no one truly knows exactly how EU policymakers will define DeFi. I expect that around mid-2026, EU authorities will begin to clarify how to legally define the concept of 'decentralization'."
The importance of this definition is self-evident, as it will directly determine which crypto projects can be exempt from strict financial regulation and which must follow compliance requirements similar to traditional financial institutions. In fact, Recital 22 of the MiCA regulation once mentioned that "fully decentralized crypto asset service providers should not be within the scope of this regulation," but regulatory authorities have yet to provide clear guidelines on the specific standards of "full decentralization", leaving many uncertainties for the future regulatory path of DeFi.
Fundamental Conflict Between DeFi Core Characteristics and MiCA Traditional Regulation
The MiCA framework was initially criticized by some market participants due to potential regulatory gaps for decentralized protocols. The regulation generally requires crypto asset service providers to comply with strict licensing systems and customer identification (KYC) and anti-money laundering (AML) requirements, which fundamentally conflict with the core principles of DeFi's permissionless and trustless financial services.
The difficulty in defining the "decentralization" concept primarily stems from its diverse manifestations in practice. For example, mainstream blockchains like Bitcoin and Ethereum lack a single central issuer or controlling entity, making traditional, centralization-based regulatory models difficult to apply. On the other hand, decentralized autonomous organizations (DAOs) as an emerging governance model manage financial activities through code-based automatic execution and community voting, rather than relying on traditional central management institutions, further increasing the complexity of regulatory applicability. It remains to be seen whether future DeFi protocols will need to adjust their operational models to comply with regulations or if regulatory authorities will develop more flexible innovative approaches.
It is worth noting that MiCA is not the EU's only regulation in the digital financial realm. Marina Markezic, Executive Director and Co-founder of EUCI, stated that a large-scale "MiCA II" revision will not appear in the short term, but ongoing discussions on specific areas like stablecoins may prompt the EU to introduce more targeted legislative updates. In addition to MiCA, the Digital Operational Resilience Act (DORA) has taken effect in January 2025, aiming to strengthen the digital security and cyber resilience of financial entities, including crypto platforms. Furthermore, new rules designed to limit anonymous crypto accounts and enhance anti-money laundering efforts are expected to be implemented in 2027, collectively forming an increasingly tight digital financial regulatory network.
How It Affects Taiwan
Meanwhile, Taiwan is actively constructing its virtual asset regulatory framework. The Financial Supervisory Commission (FSC) has released a draft "Virtual Asset Management Regulation" in March (previously called the "Virtual Asset Service Providers Management Regulation" draft), planning to strengthen comprehensive supervision of the crypto industry. The draft covers licensing requirements for virtual asset service providers (VASPs), stablecoin issuance standards, and corresponding enforcement measures, explicitly stating that it references the regulatory direction of the MiCA regulation.
When borrowing from MiCA's experience, Taiwan cannot avoid the severe challenge of defining and effectively regulating various decentralized entities. Anonymous technology legal experts point out that Taiwan can expect to encounter the same problems the EU faced when facing changes in the virtual asset regulatory environment, and whether it can adapt accordingly depends on the coordination and efforts of Taiwan's regulatory authorities and the private sector.
The primary focus is on how to localize "decentralization" in a way that aligns with Taiwan's interests; secondly, the allocation of regulatory resources and the construction of technical capabilities, and how to establish a professional certification system for industry personnel. Compared to the EU, Taiwan may face more significant challenges in terms of talent pool and resources required for regulatory compliance.
Expert: Taiwan's Regulation Insists on Taking the Most Difficult Path
Given the borderless nature of DeFi, Taiwan's regulatory framework needs to maintain a certain degree of coordination and cooperation with international regulatory agencies. How to maintain a non-exclusive approach while solidifying local market needs and innovation is extremely challenging.
Recently, what has made Taiwan's regulation a hot topic is the Financial Supervisory Commission's Securities and Futures Bureau's notice prohibiting virtual asset services from cash transactions, which has caused an uproar in the industry and left exchange operators at a loss. Under such a division of responsibilities, how to fulfill the "full transaction review" principle in decentralized transactions for the Financial Supervisory Commission and Criminal Investigation Bureau's VASP industry filing is, frankly, quite difficult. Taiwan's future regulatory path will be very arduous:
The current anti-money laundering laws and related regulations in Taiwan, which mention virtual asset trading activities on behalf of others, need to comply with the Virtual Asset Service Provider (VASPs) requirements of Taiwan's regulatory authorities. Based on law enforcement practices involving crypto crimes by police, prosecutors, and investigators, this further involves "decentralized" transaction content.
If future compliance is to follow MICA and further extend to the DeFi domain, Taiwan's regulation will inevitably require massive costs in clarifying various token types and responsibilities, legal compliance costs, and will likely need to go back and deeply modify inappropriate regulations. If Taiwan insists on taking a path different from international regulation while also emulating the EU, regulatory authorities and participants must have extremely great determination.
