European lawmakers are preparing to regulate decentralized finance (DeFi) in 2026, but have yet to clarify the definition of decentralization under the existing Markets in Crypto-Assets (MiCA) framework. While MiCA, the first comprehensive regulatory structure for the crypto sector, came into effect on December 30, 2024, focus is now shifting toward DeFi, with many unresolved questions about how these protocols fit within the regulatory landscape. According to Vyara Savova from the European Crypto Initiative, DeFi protocols are in a state of regulatory limbo, as they may not conform to MiCA regulations. Although criticisms exist regarding MiCA's approach to DeFi, particularly regarding requirements for licensing and anti-money laundering compliance, a specific provision indicates that fully decentralized crypto-asset services may not be subject to these regulations. Future amendments or discussions around the regulatory framework may occur every 12 to 18 months, but the anticipated MiCA II update is unlikely, as discussions have shifted toward targeted legislative updates regarding stablecoins rather than a complete overhaul of MiCA. Further, new Anti-Money Laundering rules affecting anonymous crypto accounts are set for implementation in 2027.

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