EU must decide the future of DeFi loans by September 30

European Banking Authority asks EU to review DeFi loan access as September 30 consultation deadline nears

On September 24, the European Banking Authority asked the European Commission to examine whether MiCA should reach crypto firms that route customers into DeFi loans, including through interfaces or products. Its response calls for a cost-benefit analysis of duties that could apply to intermediated borrowing and lending and to crypto-asset service providers offering DeFi lending access. The request is a call to assess possible legislation, not a new lending rule; the targeted consultation closes on September 30 at 11:59 p.m. Central European Summer Time.

Review request, not a new lending rule

A loan may execute on an on-chain protocol while a company provides the app that brings a customer to it. The European Banking Authority’s recommendation puts that company-controlled path inside the European Commission’s review. The response changes no existing rule and enacts no new requirement, but it asks the Commission to look at how such routes should be treated. The regulator tied its call to consumer risks. The MiCA review maps possible roles for crypto-asset service providers in DeFi lending, while direct smart-contract use remains an unresolved issue.

Two possible changes and six safeguards

The European Banking Authority outlined two changes. One would add intermediated crypto borrowing and lending to the MiCA service list for crypto-asset service providers. The other would create requirements for providers that give access to DeFi lending protocols through an interface or a product that exposes users to DeFi. The European Commission would need to judge the scale of these activities, retail participation and the seriousness of the risks before deciding whether to propose legislation. The response frames six DeFi lending safeguards for analysis, but none is in force.

Possible protections include suitability tests to decide whether a customer should participate, leverage caps, and fuller disclosures for borrowing risks. For access routes, the European Banking Authority suggested warnings that a truly decentralized protocol may operate without regulatory safeguards. It also raised the idea of certifying lending protocols for resilience to cyberattacks. Another option targets tokens whose issuers lack required MiCA authorization. The European Banking Authority said crypto-asset service providers could be barred from intermediating or facilitating loans involving assets that meet MiCA’s definition of an asset-referenced or e-money token but have no authorized issuer. That restriction would limit providers’ access to those lending activities.

Consumer harms behind the proposals

The response lists potential harms that could motivate future rules: incomplete information about fees, yields, or collateral changes; leverage that can magnify losses; commingling, outages, hacks, and poor recordkeeping. It also notes missing creditworthiness checks and the risk of over-indebtedness. A related reading headline says EU central banks attack MiCA rules and stablecoin runs are blamed.

MetaMask, Aave and the unresolved access boundary

MetaMask’s lending guide describes in-app access to Aave stablecoin pools and mobile steps for depositing tokens. Aave’s access guide says users can reach the protocol through its own interface, other applications, or direct smart-contract interaction. Those documents show that lending infrastructure can be reached through several routes. Neither guide says whether MetaMask’s feature is available to EU customers or how any named operator would be classified under a future crypto-asset service provider rule. The European Banking Authority proposal focuses on providers that facilitate access.

Future lawmakers would still need to define the activity and decide how to treat direct smart-contract use. Depending on those choices, an app could face checks or warnings at the point of entry while a protocol continues executing loans on-chain. The response distinguishes an interface that gives protocol access, a service that intermediates a loan, and a product providing DeFi exposure. Any future measure would have to turn those distinctions into clear obligations for firms and customers, with checks and disclosures attached to each route.

Feedback, report and possible legislation

Feedback from the targeted consultation will inform the European Commission’s report on MiCA’s application and crypto-market developments. The European Commission says it may pair that report with a legislative proposal if warranted. Until then, the European Banking Authority proposals mark a possible access and compliance boundary, but the scope and requirements remain undecided. The European Banking Authority document also asks the Commission to consider the nature and scale of an activity, the extent of retail participation, and the materiality of its risks, which could make rules differ across products.

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