BRUSSELS

The European Commission initiated a review on May 20, 2026, to determine if decentralized lending vaults should fall under the Markets in Crypto Assets (MiCA) framework, targeting structures explicitly excluded from the original rulebook.

The consultation focuses on lending vaults that funnel billions of dollars into on-chain credit markets while operating without a single-entity structure. The vaults currently exist in legal limbo under non-binding interpretations that often place them outside MiCA and EU fund regulations.

DeFi lending vaults perform lending functions but distribute operational responsibilities across smart contracts and multiple participants, complicating efforts to identify a specific regulated entity or service provider under existing frameworks.

Morpho's Vault V2 architecture illustrates this structural complexity. Responsibility segments across an owner, curator, allocator, and sentinel. The curator configures strategy and risk parameters; the allocator executes capital allocations; the sentinel holds mitigation powers. This division makes it difficult to map vault participants to a singular regulated lending service provider.

Jonathan Galea, partner at Cahill Gordon Reindel, examined the regulatory position of lending vaults under EU financial regulation. He cautioned against categorizing all lending vaults together, noting that vaults "solve more practical problems than they create" by directing fragmented liquidity into lending markets.

Galea differentiated between vault types, noting that some buy and sell crypto assets and should face distinct regulation from those focused on directing liquidity. A broad regulatory category for "DeFi lending" risks encompassing structures with different economic functions and control mechanisms.

Yuriy Brisov, EU digital assets lawyer and partner at Digital Analogue Partners, said the law regarding these vaults is currently unclear.

Regulators should approach the framework "really carefully," according to legal experts familiar with the matter. A dedicated framework could enhance safety and expand access to DeFi lending, provided rules accommodate the inherent architecture of decentralized protocols.

The European Commission's consultation period concludes Sept. 30.