Brussels is reviewing whether crypto lending should fall under the Markets in Crypto Assets (MiCA) framework, potentially expanding the EU's digital asset rulebook beyond its original scope. MiCA as drafted excluded crypto lending entirely.
On May 20, the European Commission initiated a consultation seeking stakeholder input on areas left outside the initial MiCA framework, specifically DeFi and crypto lending and borrowing activities.
DeFi lending vaults present a regulatory challenge. These on-chain structures can channel billions of dollars into credit markets without resembling conventional lending operations. Their legal status currently relies on non-binding interpretations that generally place them outside both MiCA and existing EU fund regulations.
"The law pertaining to vaults is unclear at present," said Yuriy Brisov, an EU digital assets lawyer and partner at Digital Analogue Partners. Vaults perform the economic functions of lending but distribute other functions across smart contracts and multiple participants rather than concentrating them in a single entity.
Morpho's Vault V2 architecture illustrates the issue. The design divides responsibilities among an owner, curator, allocator and sentinel. The curator sets strategy and risk parameters, the allocator executes capital allocations, and the sentinel holds risk-reduction powers. This distribution of roles complicates identifying a single provider of a regulated lending service under MiCA.
Jonathan Galea, partner at Cahill Gordon Reindel, examined the issue in recent client analysis focused on how vault structures interact with MiCA, stablecoin rules and European fund law. Galea cautioned against treating lending vaults as a monolithic category.
"Lending vaults solve more practical problems than they create," Galea said. They direct fragmented liquidity into lending markets. Other vault types that buy and sell crypto assets should face different regulatory treatment, he added.
A broad regulatory category covering general "DeFi lending" could inadvertently capture structures with varied economic functions and control dynamics, according to Galea, requiring regulators to distinguish between distinct on-chain mechanisms.
Bitwise plans to launch on-chain vaults via Morpho, signaling institutional appetite for decentralized credit primitives.
