EU Moves Closer to Tighter DeFi Lending Rules as EBA Pushes MiCA Expansion

The European Union has moved closer to tighter oversight of DeFi lending access after the European Banking Authority called for crypto borrowing and lending services to be brought within the scope of the bloc’s Markets in Crypto Assets framework. The recommendations, published as part of the European Commission’s ongoing review of MiCA, would require legislative changes before taking effect — but they signal a clear regulatory direction for the fast-growing DeFi lending sector.

According to the EBA, crypto asset service providers that connect customers to decentralized lending protocols could face new requirements if the European Commission decides to expand MiCA. The authority wants the Commission to conduct a cost-benefit analysis of legislative changes that would add the intermediation of crypto borrowing and lending to the list of services regulated under the framework.

The EBA’s recommendations go beyond centralized crypto lenders and directly consider how regulated firms provide customers with access to DeFi protocols. Possible measures include suitability tests for users, limits on leverage and extra disclosure requirements for firms providing crypto lending services.

Suitability tests, leverage caps and protocol certification on the table

Among the more consequential proposals, the regulator raised the prospect of restrictions involving lending products that use asset-referenced tokens or e-money tokens requiring authorization under MiCA. A certification regime for DeFi lending protocols could also be considered, particularly where regulated crypto firms act as the gateway through which customers access decentralized lending services.

Suitability tests would require platforms to assess whether a customer’s knowledge and financial situation match the risks of leverage-driven borrowing against volatile collateral. Leverage limits, meanwhile, would cap how much users can borrow against their crypto holdings — a direct response to the liquidation cascades that have repeatedly destabilized DeFi markets during downturns.

Crypto lending activity has been identified in at least 16 EU member states, according to research cited by the EBA. The authority said access to decentralized finance through crypto firms and the growing use of artificial intelligence tools are making the boundary between centralized and decentralized financial services less clear.

MiCA currently provides an EU-wide framework for crypto asset issuers and crypto asset service providers, but lending and borrowing are not fully covered by its existing service categories — a gap the EBA now wants closed.

Parliament already put DeFi on the agenda

A July policy position from the European Parliament had already put DeFi and lending on the regulatory agenda. Lawmakers asked the Commission to examine whether decentralized finance, staking, crypto lending and borrowing, NFTs and tokenized financial assets require further treatment under MiCA. The position did not change existing law but set out the areas lawmakers wanted examined after MiCA’s rollout.

The EBA’s latest recommendations give the Commission a more detailed set of options for lending specifically. Requirements could be placed on crypto firms that intermediate borrowing and lending or provide an interface through which customers reach DeFi protocols — meaning wallets, aggregators and platforms offering one-click access to protocols like Aave or Morpho could all fall within scope.

Such rules would depend on legislative changes. The Commission’s MiCA review consultation remains open until Sept. 30 and is intended to help determine whether the framework remains fit for purpose following its initial implementation. Feedback may feed into a report on MiCA’s application, and could be followed by a legislative proposal if the Commission considers changes necessary.

Stablecoin lending draws separate scrutiny

Stablecoins form another pillar of the lending debate. The EBA said policymakers could consider restricting access to borrowing and lending involving asset-referenced tokens and e-money tokens that require authorization under MiCA.

The proposal comes days after European central banks called for MiCA’s restrictions on stablecoin remuneration to cover lending, borrowing and staking arrangements that can generate indirect returns for token holders. Under that proposal, the European System of Central Banks argued that crypto platforms could structure products outside services currently covered by MiCA in ways that effectively allow stablecoins to generate returns — undermining the bloc’s yield ban for authorized tokens.

The EBA separately said existing MiCA requirements for issuers of asset-referenced and e-money tokens are broadly appropriate, while recommending changes for third-country multi-issuer schemes. As of Sept. 1, 39 e-money tokens had been issued under MiCA, while no asset-referenced tokens had received authorization, according to the authority.

Reserve requirements are under review as well. The EBA recommended reconsidering the minimum amount of reserves that issuers must hold as bank deposits while preserving risk-management requirements.

What it means for DeFi in Europe

The Commission opened its MiCA review in May to gather feedback on how the regulation is functioning and whether parts of the framework should be changed. The consultation covers crypto issuers, service providers, financial institutions, technology companies, industry groups and public authorities.

MiCA entered into application on Dec. 30, 2024, with its provisions covering asset-referenced and e-money tokens having started applying six months earlier. Transitional arrangements allowed some existing crypto companies to continue operating under national regimes before the bloc moved into full implementation.

Since then, attention has shifted toward activities that were not fully addressed by the original regulation, with DeFi lending now squarely in the spotlight. For platforms serving EU users, the message from the EBA is unambiguous: if you intermediate access to decentralized credit, the days of operating outside MiCA’s perimeter are likely numbered.