The industry advocacy group Association for Financial Markets Europe (AFME) has issued a document on its official website urging regulators not to exclude DeFi from its MiCA regulatory framework. “We believe it is critical to avoid the possible exclusion of so-called ‘decentralized activities’; as this could provide opportunities for regulatory arbitrage and weaken the application of emerging frameworks,” the article states. The EU recently passed MiCA regulations, but the New paradigms such as decentralized finance are ruled out. AFME warned that such exclusions could compromise the effectiveness of the new regulatory framework. AFME sees DeFi as a major innovation within the financial system.

The paper, titled “Decentralized Finance – Principles for Building a Robust Digital Economy,” recommends that the EU develop a taxonomy to classify DeFi activities and digital assets. “This will help create a comprehensive regulatory solution that addresses DeFi’s unique challenges,” it added. AFME also advocates a risk-based approach to DeFi, calling for a consistent regulatory framework that embraces varying degrees of centralization.