GERMANY Trends and Developments Contributed by: Wolfgang Richter, gunnercooke GmbH
using governance tokens, and votes may decide mat- ters of protocol operation, parameter changes, share in protocol fees and so on – that is, subjects reflecting central control. The “decentralised” element is that these decisions cannot be executed by an identifiable entity or group of persons, meaning that there is no regulatory centralised control. The hurdles are high. Even if voting is distributed such that no single entity controls the votes, voting decisions must still be executed by someone. Vot- ing results would need to be implemented in smart contract operations without discretionary room for intermediate management to make decisions. To be considered decentralised in the regulatory sense, the DAO must not be operated as a centrally managed partnership, must not be concentrated in a small group, and must not delegate to identifiable bodies. The KYC / AML - only gatekeeper Consider the case where the only identifiable control point in an otherwise operator-less protocol is a KYC/ AML gatekeeper determining who is allowed access. The gatekeeper has no role in setting parameters, matching trades or executing transactions – only in identity verification and sanctions screening. The doctrinally correct conclusion is that the operator question under MiCAR is whether a legal entity con- trols one of the regulated activities listed in Article 3 (1)(16) – the substantive trading, custody, exchange, execution, transfer and advisory functions. AML gate- keeping is not among them; it is a separate function under a separate regime (AMLR and AMLD), with its own obligations – customer due diligence, suspicious transaction reporting, sanctions screening, record- keeping. The two regimes are conceptually independ- ent. An entity performing AML gatekeeping is regu- lated as an AML obligor under the AMLR; it is not, by virtue of that function alone, a CASP under MiCAR. Recital 22’s “without any intermediary” formulation supports this functional separation: an AML-purposes gatekeeper is not an intermediary in the substantive financial services sense. The same analysis applies under MiFID II. Neither ESMA nor other European regulators have yet provided guidance on how access control should be
assessed under MiCAR or MiFID II control frameworks. However, this would create a regulatory tension if the very act of implementing a KYC/AML gate – a meas- ure they generally encourage – triggers full authorisa- tion requirements for the protocol. This would create a disincentive for protocols to adopt such compliance controls, undermining regulatory goals. Conclusion for the EU The essential regulatory question for token protocols in the EU is not whether they are decentralised in the abstract, but rather who can actually make decisions: who can change the protocol, select pools, admit assets or control treasury assets? If a small group can control the regulated activity, governance is central- ised even if the protocol uses a DAO label. Yet, there remains significant scope for structuring token protocols in ways that may fall outside existing licensing frameworks. The key is to genuinely hand over control of transactions to the peers who interact directly with each other. If the handling of financial transactions is executed through autonomous smart contracts outside central control, then there may be no identifiable operator to which licensing require- ments under MiCAR and MiFID II can be attributed. This principle appears in specific architectures. The choice to use an AMM, for instance, does not in itself resolve the regulatory question. By analysing the AMM’s economic substance, it becomes clear that its function is not readily characterised as that of a multilateral trading facility but rather a form of prin- cipal trading. This shifts the regulatory focus from market infrastructure rules to identifying the principal trader. Consequently, the decisive question becomes who controls the AMM’s parameters and is therefore acting as the regulated principal. Furthermore, the analysis demonstrates that decen- tralisation is not a simple path to deregulation but rather a complex exercise in navigating the regula- tory landscape. A protocol that successfully avoids classification as a crypto-asset service provider under MiCAR by using a mechanical, non-discretionary ora- cle may, by virtue of that very design, give rise to sub- stantial arguments for qualification under the Bench- mark Regulation. The controller of a price-feed oracle,
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