Cardano Foundation Urges Risk-Based Rules for DeFi and Staking in EU
Where the rules draw the line
The Cardano Foundation wants EU crypto rules to distinguish between using a decentralized network and receiving a financial service from an intermediary. The distinction rests on a practical question: who controls users’ assets, and what risks does the service create? That framing puts the focus on what a service actually does, rather than whether it uses blockchain technology. It’s a useful test for regulators, though applying it consistently across different products could be difficult.
In a Wednesday blog post, the foundation outlined its 19-page submission to the European Commission, filed Sept. 30. It argues that existing financial laws should apply according to an activity’s function and risk, rather than the technology behind it. The submission arrives as European authorities consider how rules written for crypto services should interact with rules already governing financial activities. That overlap can matter to a company deciding whether a product falls within one set of requirements, another, or both.
“Regulation should follow the substance of an activity, the functions performed, and the risks created, not the technology through which it is conducted,” the foundation wrote. That principle has an intuitive appeal: similar services can present similar risks even when their technical design differs. But a functional test still leaves hard questions about where responsibility sits when software, network participants and commercial operators all play a role. The slogan is clearer than the boundary cases.
Custody and staking
That distinction matters for Cardano’s ADA holders, who can delegate tokens to help secure the network without transferring custody or locking their assets. The foundation says this kind of direct participation should be treated differently from staking services run by intermediaries. In the first case, users participate directly while retaining control of their tokens; an intermediary service can introduce another party between the user and the network. The difference may affect what protections are appropriate, because control over assets and the ability to act on a user’s behalf are central to assessing the service’s risks.
Here’s the thing: calling both activities “staking” can obscure meaningful differences in how they work. A label describes a broad category, not necessarily who holds assets, makes decisions, or bears operational responsibility. Similar systems typically require regulators to examine the actual arrangement, including the role of any service provider, rather than rely on product terminology alone. And this is the part most people overlook: clearer rules for one model don’t automatically settle how another model should be treated.
For ADA holders, the argument is about whether direct network participation can remain distinct from a service that takes custody or manages participation for them. The foundation’s position is that those distinctions should count in the rules. That’s a policy argument, not a guarantee about how regulators will classify any particular product.
Overlap is the practical concern
The submission also calls for clearer boundaries between the EU’s Markets in Crypto Assets Regulation (MiCA) and existing financial laws. Overlapping requirements, combined with differing interpretations among member states, could leave crypto businesses uncertain about which rules apply. That uncertainty can complicate product planning: a firm may need to understand not only the activity it offers, but also how authorities interpret that activity across jurisdictions. The foundation’s concern is therefore about both the substance of the rules and their consistent application.
When two regulatory frameworks touch the same service, the central question is how their requirements fit together. A clear division can help businesses identify their obligations and help users understand what safeguards accompany a service. If the boundary is unclear, firms may face uncertainty before they can confidently explain a product’s structure to customers. The numbers here are underwhelming: the submission is a request for clarity, not a settled answer to that implementation problem.
EU regulators are weighing broader oversight of crypto services. In September, the European Securities and Markets Authority recommended added safeguards for staking, lending and borrowing, as well as a new regulated service category for firms that provide access to DeFi protocols. Those recommendations show that the debate extends beyond direct delegation on Cardano. They also put pressure on policymakers to distinguish between services that expose customers to an intermediary and activities that users carry out through a decentralized network.
That said, a proposal for additional safeguards and the foundation’s request for activity-based rules aren’t necessarily incompatible. The difficult work is defining which risks justify oversight and who is responsible for managing them. If you’re working in this space, the practical question is whether a rule can describe the service clearly enough to guide both providers and users without treating unlike arrangements as identical. A boundary that sounds simple in principle may need careful treatment in practice.
A broader push for regulatory clarity
The foundation has also sought clearer rules in the United States. On Oct. 20, it joined five other blockchain organizations in an open letter asking the Securities and Exchange Commission to formally recognize digital commodities as non-securities under its proposed crypto framework. The US letter and the EU submission address different policy processes, but both reflect the industry’s interest in classifications that turn on the nature of an activity or asset. They don’t establish that regulators will adopt the groups’ preferred approach.
This is more significant than it looks because classification affects the practical expectations attached to a service. For users, the relevant questions include who controls their assets and what protections may apply. For businesses, unclear boundaries can make it harder to design services and explain their responsibilities. A principled distinction between direct network use and intermediary services could help, provided regulators can apply it to real arrangements consistently.
The foundation has made its case; the next test is how policymakers respond to the underlying boundary questions. The discussion will turn on definitions, responsibilities and the risks regulators decide matter. Clearer language would help. Consistent application would matter more.
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