The Cardano Foundation has formally urged European Union institutions to refrain from developing separate regulations specifically for decentralized finance (DeFi) and staking within the EU regulatory framework. The organization argues that any oversight should be based on financial functions and real risks, rather than penalizing the underlying technology of open networks.
In a detailed response to the European Commission's inquiry, the entity argues that traditional financial legislation already has sufficient tools to mitigate risks, warning about the potential frictions and uncertainties that would arise from superimposing additional regulatory requirements on decentralized infrastructures.
Cardano's proposal in response to the MiCA review
The institutional position was formalized through a technical document submitted to the European Commission. In that report, The Cardano Foundation asked the European Union to avoid separate regulations for DeFi and stakingstressing that regulation should follow the substance of the activity, the functions performed and the risks involved, rather than focusing on the technology through which transactions are executed.
The organization argues that automatically extending the requirements of the MiCA Regulation to decentralized models without intermediaries would distort the objectives of EU legislation. From the organization's perspective, European supervision should focus on clearly defining when an activity involves the intervention of third parties with effective control over the funds and when it is a purely algorithmic and autonomous interaction on the blockchain. The overlapping regulations and disparate interpretations among member states pose a risk to the continent's technological development.
Custody versus direct participation in the network
One of the key points of the document submitted to European regulators lies in the technical distinction between direct token delegation and commercial services provided by custodians. Within the network ecosystem, users can use their native ADA tokens to validate transactions and support consensus without ever transferring custody or blocking the availability of their assets in non-custodial wallets.
The Cardano Foundation emphasizes that this direct technical interaction does not share the financial risks inherent in centralized entities. When a user does not relinquish control of their private keys or delegate their ownership rights to a third party, there is no classic counterparty risk. In contrast, services offered by commercial intermediaries that assume custody or manage assets on behalf of third parties do require clear safeguards. Applying the same operational obligations to a mathematical protocol as to a centralized provider would, according to the report, constitute a disproportionate approach that would negatively impact users who manage their own crypto wallet in an independent way.
ESMA's regulatory push on emerging services
Cardano's stance comes amid intense regulatory debate in Brussels. The European Securities and Markets Authority (ESMA) recently recommended introducing additional safeguards for staking, lending, and borrowing activities within the digital sector. The supervisory body also proposed creating a new category of regulated services specifically for entities that facilitate user access to decentralized protocols.
This initiative by the regulators seeks to close potential regulatory gaps in the implementation of the MiCA Regulation. However, various industry stakeholders warn that categorizing user interfaces or open-source developers under the same regime as traditional service providers could discourage innovation in Europe. Proponents of the decentralized model insist that the inherent transparency of smart contracts and the absence of human discretion in the protocols eliminate many of the risks of opacity that historical financial legislation has always sought to address.
Legal coordination and the international regulatory framework
Beyond European borders, blockchain ecosystem organizations are engaged in intensive institutional dialogue to define the limits of state oversight. Cardano has recently participated in joint actions with other global entities, such as Chainlink, requesting clear frameworks from international regulatory bodies, including the U.S. Securities and Exchange Commission (SEC), that recognize digital commodities and do not equate any native asset with traditional investment contracts or securities.
Within the European Union, the challenge lies in harmoniously integrating traditional financial directives with the new mandates of MiCA. If a user decides buy ADA To interact with the infrastructure or participate in governance, regulations must provide legal certainty without forcing open-source software protocols to comply with requirements designed exclusively for corporate entities. To learn more about regulatory developments in the sector, you can consult our ongoing coverage at news.bit2me.com.
FAQ
What is the Cardano Foundation requesting from the European Union?
The Cardano Foundation is asking the EU not to create separate, specific laws for DeFi and staking within MiCA, arguing that existing financial laws are sufficient to regulate risks based on function rather than technology.
Why do they differentiate native staking from custodial services?
In Cardano's native staking, users retain control of their assets and private keys at all times, unlike centralized services where an intermediary assumes custody and generates financial counterparty risk.
What does ESMA propose regarding decentralized finance?
The European Securities and Markets Authority has recommended adding safeguards for lending and staking, as well as evaluating a new category of regulated services for companies that provide access to DeFi platforms.
The debate initiated by the Cardano Foundation highlights the necessary balance between consumer protection and the preservation of open-source infrastructure. With the European regulatory framework constantly evolving, clearly defining the responsibilities of intermediaries regarding unauthorized technology will be fundamental to the continent's technological standing.
The final decisions adopted by the European Commission and financial supervisors will determine the degree of competitiveness of the sector in the Union, either consolidating MiCA as a global regulatory model or opening up new adaptation challenges for the decentralized ecosystem.
Investing in cryptoassets is not fully regulated, may not be suitable for retail investors due to high volatility and there is a risk of losing all invested amounts.
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