EU MiCA "2026 Comprehensive Reach for Defi" Operators Struggle, How Will It Affect Taiwan's Regulatory Direction?

After the EU MiCA regulation came into effect, regulatory attention turned to DeFi, and "decentralization" was defined as a difficult problem, and Taiwan also faced similar challenges and localization considerations when referring to MiCA legislation, testing regulatory wisdom. (Synopsis: Liquidate your Crypto without paying taxes!) South Korea gives an ultimatum to 17 tax-owed cryptocurrency nationals) (Background supplement: 2025 latest "Cryptocurrency investor tax filing regulations: what is the difference between domestic and foreign income, virtual currency losses can be recognized as losses? The world's first comprehensive regulation for crypto asset markets, the European Union's Markets in Crypto-Assets Regulation (MiCA), came into effect at the end of 2024, bringing a unified compliance framework to the fast-growing crypto industry. However, just as market participants are gradually adjusting to the changes caused by MiCA, EU regulators have quietly turned their eyes to the more complex field of decentralized finance (DeFi) and plan to explicitly include it in the regulatory scope in 2026, indicating that a new phase of crypto regulation is coming. EU MiCA comes into effect, DeFi regulation is defined as an unsolved problem The full implementation of MiCA marks an important step in the EU's crypto asset regulation, with the goal of increasing market transparency, protecting investors, and ensuring financial stability. Nevertheless, the regulatory status of DeFi protocols remains ambiguous under the MiCA framework. Vyara Savova, senior policy director at the European Crypto Initiative (EUCI), made this clear during a recent public discussion, saying that while MiCA theoretically places DeFi outside its scope, many key definitions and boundaries remain unresolved. Savova further stated: "No one really knows exactly how decision-makers in the EU will define DeFi at the moment. I expect that it will not be until around mid-2026 that the relevant EU authorities begin to elaborate on how to legally define the concept of 'decentralization'." The importance of this definition is self-evident, and it directly divides which crypto projects are exempt from strict financial regulations and which must comply with similar compliance requirements as traditional financial institutions. In fact, Recital 22 of the MiCA regulation mentions that "fully decentralized crypto asset service providers should not fall within the scope of this regulation", but the regulator has not yet given clear guidance on the specific criteria for "fully decentralized", leaving a lot of uncertainty about the future regulatory path of DeFi. The fundamental conflict between the core characteristics of DeFi and the traditional supervision of MiCA When the MiCA framework was initially constructed, it was criticized by some market participants for its potential gaps in the supervision of decentralized protocols. The regulation generally requires crypto-asset service providers to comply with strict licensing regimes as well as customer identity verification (KYC) and anti-money laundering (AML) regulations, which fundamentally conflict with DeFi's core philosophy of permissionless, trustless financial services. The difficulty in defining the concept of "decentralization" stems mainly from the diverse forms it takes in practice. For example, mainstream blockchains like Bitcoin (Bitcoin) and Ethereum (Ethereum) lack a single central issuer or controlling entity, making traditional, centralized agency-based regulatory models difficult to apply. On the other hand, decentralized autonomous organizations (DAOs), as an emerging governance model, manage financial activities through code automation and community voting, rather than relying on traditional central authorities, which further increases the complexity of regulatory application. It remains to be seen whether DeFi protocols will need to adapt their operating models to comply with regulation in the future, or whether regulators will develop more resilient and innovative approaches. It is worth noting that MiCA is not alone in EU regulation in the field of digital finance. Marina Markezic, executive director and co-founder of the EUCI, said that a large-scale revision of the so-called "MiCA II" in the market will not occur anytime soon, but continued discussions on specific areas such as stablecoins may prompt the EU to introduce more targeted legislative updates. In addition to MiCA, the European Union's Digital Operations Resilience Act (DORA), which came into force in January 2025, aims to strengthen the digital security and cyber resilience of financial entities, including crypto platforms. In addition, new rules aimed at restricting anonymous encrypted accounts and strengthening anti-money laundering are expected to be implemented in 2027, together forming an increasingly tightening network of digital financial supervision. How it affects Taiwan At the same time, Taiwan is also actively building its virtual asset regulatory framework, and the Financial Regulatory Commission (FSC) has issued a draft of the "Virtual Asset Management Regulations" (previously known as the "Virtual Asset Service Service Provider Management Regulations") in March, which plans to strengthen the overall supervision of the crypto industry, covering the licensing requirements of virtual asset service providers (VASPs), stablecoin issuance standards, and corresponding enforcement measures, and clearly states in the draft that it is a reference to MiCA Regulatory direction of the Act. When learning from MiCA's experience, Taiwan also cannot avoid the severe challenge of how to define and effectively supervise various decentralized entities, anonymous technology legal experts pointed out that it can be expected that in the future, when facing changes in the virtual asset regulatory environment, Taiwan will also suffer from the same problems encountered by the EU, and whether it can adapt measures to local conditions, the coordination and efforts of the Kaotu Bay regulatory unit and the private sector. The first is how to localize "decentralization" in a way that serves Taiwan's interests; Compared with the EU, Taiwan may face more significant challenges in terms of the talent pool and resources required for regulatory compliance. Expert: Taiwan's regulatory framework insists on taking the most difficult path Given the borderless nature of DeFi, Taiwan's regulatory framework needs to maintain a certain degree of coordination and cooperation with the standards of international regulators, and how to maintain the demand and innovation of the local market that is not exclusive is difficult. Recently, Taiwan's regulation has become a hot topic, is the FSC Securities and Futures Bureau notified virtual asset services to ban cash trading, causing an uproar in the industry, but also let the exchange operators at a loss, and in such a division of responsibilities, how to implement the "full transaction for reference" principle in decentralized transactions, for the FSC and the Criminal Bureau and VASP industry filing for use, experts honestly say that there is a certain difficulty, Taiwan's future regulatory route will be very difficult: Today's Taiwan Money Laundering Prevention Act and related regulations, The reference to virtual asset trading for others needs to meet the requirements of virtual asset service providers (VASPs) of Taiwan's regulatory authorities, and according to the practice of the police, prosecutors and investigators involved in crypto crimes, in law enforcement facts, this has further involved "decentralized" transactions. If the future to follow the MICA further extended to the Defi field, Taiwan's supervision is bound to clarify the various types of tokens and responsibilities, compliance costs, need to make a huge cost, it is very likely to need to go back and deeply modify various inappropriate regulations, if Taiwan insists on taking a different path from international regulation, and to follow the EU, regulators and participants must have great determination. Related stories Miner's dream country? Exploring the full picture of cryptocurrency taxation and regulation in Iceland Brazil considers banning people from holding stable holdings on DEXs.