The Cardano Foundation has urged the European Union not to introduce standalone regulatory rules for decentralized finance, or DeFi, and staking, saying financial regulation should be based on the function and risk of an activity rather than the technology behind it.
In a blog post published Wednesday, the foundation outlined a 19-page submission it sent to the European Commission on Sept. 30. The paper called on policymakers to distinguish between direct participation in decentralized networks and financial services provided by intermediaries, particularly services that involve custody or control of user assets.
The foundation said regulation should follow the substance of an activity, the function being performed, and the risks created, instead of the technical infrastructure used to carry it out.
On staking, it said Cardano users can delegate the network's native ADA token to help secure the blockchain without surrendering custody or locking their tokens. In the foundation's view, that form of direct participation should be treated differently from staking services operated by intermediaries.
The submission also called for clearer separation between the European Union's Markets in Crypto-Assets regulation, known as MiCA, and existing financial laws. The foundation warned that overlapping regulatory requirements, along with inconsistent interpretations across EU member states, could create uncertainty for crypto businesses.
The statement comes as European regulators consider expanding oversight of crypto services. In September, the European Securities and Markets Authority recommended additional safeguards for staking and lending activities and proposed a new regulated service category for companies that provide access to DeFi protocols.
Separately, on Oct. 20, the Cardano Foundation and five other blockchain organizations sent a joint letter to the U.S. Securities and Exchange Commission, urging the agency to formally recognize digital commodities as non-securities under a proposed crypto framework.