EU Regulator Targets Companies That Give Users Access to DeFi

ESMA has asked the European Commission to license the companies that connect investors with DeFi, rather than place new compliance duties inside protocol contracts. The proposal could affect how people in the EU access DeFi through interfaces, but the Commission has not adopted it.

That distinction matters for holders. A gateway could be made responsible for checking the protocols it connects investors to, explaining how transactions are routed and disclosing conflicts of interest. The contracts themselves would not carry those gateway duties under the approach described by ESMA.

Where ESMA Wants Duties Applied

In its response to the Commission’s MiCA consultation, ESMA proposed a new regulated crypto-asset service for firms that provide access to DeFi protocols. The ESMA response covers DeFi, staking, lending and borrowing, but it does not yet create law.

The proposal also calls for clearer criteria to determine which activities are genuinely decentralised. ESMA says the exemption from MiCA should be as narrow as possible. A protocol would therefore need to meet a stricter test before being treated as outside the regulated framework, rather than relying on a broad claim that it is decentralised.

The proposed gateway category covers firms that give clients technical interfaces into DeFi or route transactions to protocols. They would have to:

• Vet the protocols they expose to clients.
• Disclose how they route transactions.
• Manage conflicts of interest.

The brief does not establish which established Ethereum protocols, including any particular names, would be treated as gateways or fall within the proposed definition. The rules are aimed at the company presenting the service and connecting the user to it, not at every contract in the DeFi stack.

More Disclosure for Stakers and Lenders

ESMA also proposes proportionate requirements for staking, lending and borrowing. These would include disclosures about:

• Costs and risks.
• Rewards.
• Collateral arrangements.
• Potential losses.

ESMA says the information should be available before an investment decision is made. The goal is to make the commercial terms easier to compare, but the supplied material does not include a standard disclosure template, staking cap or lending threshold. The full response document would need to be checked before saying how far the proposals go.

For a user of an established Ethereum DeFi protocol, the practical question is whether a licensed intermediary sits between the wallet and the protocol. If it does, that company could face the gateway obligations. The protocol contract may remain outside the direct scope of those duties, while the user still receives disclosures from the service provider.

That structure would leave a regulatory seam. The licensed company handles access and customer information, while the contract executes the transaction. It may reduce the chance that every contract is rewritten to meet the same rules, but it also makes the quality of protocol vetting and conflict disclosures important to the user's decision.

Aave Activity Gives the Proposal Context

The proposal arrives while activity reported in The Defiant's DeFi newsletter showed growth in Aave V4 during September. Aave V4's tracked total value locked rose 82% to $653.8 million, while active loans increased 76% to $366.4 million. Circle's Arc held $181 million, or 27.7% of the tracked total.

Those figures describe activity around one protocol. They do not show whether Aave, or any other established Ethereum protocol, would be classified as a regulated gateway. The newsletter also supplied the figures as a market snapshot, not as evidence that the proposed rules had affected the protocol.

ESMA also wants regulated firms prevented from offering MiCA-compliant services linked to stablecoins that do not meet MiCA requirements. The accompanying Defiant coverage says the restriction could extend to custody and transfers. That could affect the stablecoins used to enter or exit a DeFi protocol, even if the contract itself is not rewritten.

The practical test for a holder is therefore straightforward: check who operates the interface, how the transaction is routed and whether the firm can explain its conflicts, costs, collateral arrangements and potential losses. The proposal is not final, and the supplied research does not identify a deadline for the Commission to act.

For now, ESMA's message is that regulation should follow the company controlling access to a protocol. Whether that approach protects users in practice will depend on the thresholds, disclosures and enforcement powers added during the next stage of the process.