EBA asks EU to assess DeFi loan rules before Sept. 30

The European Banking Authority asked the European Commission to examine MiCA rules for crypto firms that connect customers to DeFi loans. The EBA's September 24 response calls for a cost-benefit analysis of possible duties for intermediated borrowing and lending. The analysis would cover crypto-asset service providers that give customers access to DeFi lending through interfaces or products. The EBA's response does not change lending rules. The regulator cited consumer risks as the reason for examining the issue. One possible change would add intermediated crypto borrowing and lending to MiCA's list of crypto-asset service provider services. Another possible change would set requirements for providers that facilitate access to DeFi lending protocols through interfaces or products. The Commission would need to consider the scale of these activities. It would also need to consider retail participation. It would need to consider the seriousness of the risks before deciding whether to pursue legislation. Possible measures include suitability tests for customers. Leverage caps could address borrowing risks. Fuller disclosures could also address those risks. The EBA suggested extra warnings for activity through a truly decentralized protocol because that activity may lack regulatory safeguards. The EBA also suggested certifying lending protocols for resilience to cyberattacks. The EBA said crypto-asset service providers could be prohibited from facilitating borrowing and lending involving certain tokens without an authorized issuer. Those tokens would meet MiCA's definition of an asset-referenced token or an e-money token. The proposals cite incomplete information about fees and yields as potential consumer harms. They also cite possible changes to collateral requirements. Other cited risks include leverage, commingling, outages, hacks, and poor recordkeeping. The response also flags the absence of creditworthiness checks and possible over-indebtedness. MetaMask's lending guide describes in-app access to Aave stablecoin pools. Aave's access guide says users can reach the protocol through its interface, other applications, or direct smart contract interaction. Neither guide establishes whether MetaMask's feature is available to customers in the EU. Neither guide establishes how a named operator would be classified under a future crypto-asset service provider rule. Future lawmakers would still need to define the relevant activity. They would also need to decide how to treat direct smart contract use. Depending on those decisions, an app could face checks or warnings at its entry point. A protocol could continue executing loans on-chain. The Commission's targeted consultation closes on Sept. 30 at 11:59 p.m. Central European Summer Time. Feedback will inform the Commission's report on MiCA's application and crypto-market developments. The Commission says it may accompany that report with a legislative proposal if warranted. The EBA's response distinguishes between an interface that gives protocol access, a service that intermediates a loan, and a product that provides DeFi exposure. Future measures would need to translate those distinctions into obligations for firms and customers.