Crypto assets should be treated as securities by default, and the autonomous organizations that govern decentralized finance (DeFi) should be granted legal status, according to a study commissioned by lawmakers at the European Parliament that was published Tuesday.
The report comes as the European Union finalizes its Markets in Crypto Assets (MiCA) regulation, and considers whether a sequel will be needed to cover extra areas like DeFi, staking and non-fungible tokens (NFTs).
All crypto assets should be deemed a transferable security – implying they would fall under the EU’s tough governance and authorization rules that apply to traditional stocks and bonds – unless and until a national regulator says otherwise, the report says.
That default rule “shifts the onus of gathering the technical facts and arguing the scope of regulation” from regulators to industry, said the report, drafted by a panel of academics from universities in Luxembourg, Sydney and Hong Kong, on request from the European Parliament’s Economic and Monetary Affairs Committee.
Without changes, “we are skeptical that MiCA will have positive short-term effects given the difficulties of enforcing its rules in an opaque cross-border context,” in which 10,000 crypto protocols vie for the lightest possible regulation, added the document, though its findings aren't a formal position of the European Parliament.
The crypto industry has been plagued by a lack of clarity on whether rules designed for traditional financial securities apply to digital assets. In the U.S., the Securities and Exchange Commission's Chief Gary Gensler has declined to say whether major cryptocurrencies such as ether (ETH) constitute securities under his jurisdiction, but a series of legal actions against companies such as Ripple have led to accusations of regulation by enforcement.
With MiCA signed into law on Wednesday, EU agencies responsible for banking and securities markets must now set out the detailed rulemaking to put it into effect. Even before then, the European Systemic Risk Board, an EU panel responsible for monitoring financial stability risks, has called for further laws to fill in what MiCA leaves out.
U.K. experts have also been studying the legal status of decentralized autonomous organizations (DAOs), a potential precursor to regulation of a sector which the report says is a “Wild West” of “fraudsters and thieves.”
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