Decentralised finance and the markets for crypto-assets: When is your offering exempt from regulation?

Published 25-06-2024

With the MiCA regulation entering into force, it may be relevant for some actors in the crypto-asset markets to consider whether they are responsible for an offering of services they consider to be decentralised. Actors must be aware that significant criteria must be met for an offering to be considered truly decentralised. To aid in this, the Danish FSA is releasing guidance on the matter.

By end 2024, new rules regulating the markets for crypto-assets come into effect. These rules are outlined in the Markets in Crypto Assets Regulation (MiCA), which regulates both those issuing crypto assets and those providing various crypto-asset services. However, a significant exception applies to cases where the offering is completely decentralised. If the offering is completely decentralised, the service is not covered by the regulation and does thus not require licensing. Therefore, it becomes crucial for actors to understand when an offering is deemed to be completely decentralised.

The Danish FSA elaborates on these matters in a newly published paper on decentralized finance. The purpose of the paper is to provide necessary guidance on the elements that form the basis for assessing when an offering can be considered fully decentralised.

"The principles will assist relevant actors in understanding the factors that should be considered when determining whether an offering can be considered fully decentralised," says Tobias Thygesen, Director of the Danish FSA’s division for FinTech, Governance, Payment Services and Crypto-Assets.

The regulation does not elaborate on this issue, and an incorrect classification could result in providing unlawful services.

"It is important for relevant actors to carefully consider whether an offering can be classified as decentralised, as it is illegal to provide regulated services without a license. In this regard, the Danish FSA is also available for dialogue to provide guidance on the practical application of these principles," continues Tobias Thygesen.

The paper contains an introduction to the concept of decentralised finance, detailed criteria for assessing decentralisation, and outlines how these criteria will be iterated in the future.

Read the full briefing here.

Fact box

Crypto Assets
A crypto-asset is a digital asset representing certain rights attributed to the asset. Crypto-assets are based on blockchain technology and can include cryptocurrencies, among others. The most well-known crypto-assets are un-pegged crypto assets, meaning their value is not pegged to the value of underlying assets, liquidity or capital.

Decentralised Finance
Decentralised finance (DeFi) is a relatively new concept in finance driven by developments in the crypto asset markets and the opportunities to utilize software to manage tasks traditionally handled by financial institutions in "traditional" financial markets.

An offering of an activity can be classified as decentralised if no counterparty can be identified for users to enter into agreement for the provision of a service. This may occur if the activity is offered using software that no actor has control over, or if the management of control over the software is structured in a manner that prevents identification of a counterparty with whom users can contract.

The Markets in Crypto Assets Regulation is the EU regulation governing the regulation of crypto as-sets.

Last updated 25-06-2024