MALTA Law and Practice Contributed by: Ian Gauci and Cherise Abela Grech, GTG Legal
10.7 Crypto-Related Lending Crypto-asset lending refers to a provider (lender) transferring a certain value of crypto-assets or funds to a user (borrower) in exchange for the user placing a certain value of crypto-assets or funds as collateral and a commitment that the borrower will return to the lender a value equiv - alent to the transferred value of crypto-assets or funds and potential additional interests on a future date (or in the event of some other trigger event). Crypto lending is not specifically regulated under MiCA, and on the basis of a recent joint report by ESMA and the EBA, it has also been noted that this activity is not regulated in all EU mem - ber states. 10.8 Cryptocurrency Derivatives Derivatives are financial contracts whose value is derived from an underlying asset such as a reference rate or index. They encompass rights and obligations, while the definition of crypto- asset within the meaning of MiCA only makes reference to the digital representation of a value or a right. The ESMA Guidelines on the conditions and criteria for the qualification of crypto-assets as financial instruments clearly state that derivative contracts relating to a crypto-asset, a basket of crypto-assets or an index on crypto-assets as an underlying should be qualified as financial instruments within the meaning of MiFID II as it captures derivative contracts, which refer to an underlying such as assets, rights, obligations or indices. As the term “asset” is not defined within MiFID II, such notion should be interpreted in broad terms, thus also capturing crypto-assets.
10.9 Decentralised Finance (DeFi) Recital 22 of MiCA explicitly states that “Where crypto-asset services are provided in a fully decentralised manner without any intermediary, they should not fall within the scope of this Reg- ulation” . However, what truly constitutes “fully decentralised” has not been clarified. Whilst acknowledging Recital 22, ESMA also noted that the precise scope of this exemp - tion remains unclear and suggested that each system should be assessed on a case-by-case basis, considering its specific features. ESMA further emphasised that decentralisation is not an absolute concept but exists on a spectrum, ranging from centralisation to varying degrees of decentralisation. There is no definitive thresh - old that signifies “full decentralisation” , as the degree of decentralisation can always vary and evolve. With regards to security tokens, it is important to note that, under MiCA and its applicable guidelines and technical standards, it has been determined that a crypto-asset that is classified as a financial instrument is regulated under tra - ditional financial services legislation, and thus under MiFID II. However, in contrast to the exclusion under MiCA, under MiFID there is no exemption for fully decentralised crypto-asset services. The primary criterion for determining MiFID’s appli - cability is whether a crypto-asset is classified as a financial instrument. Thus, if a fully decentral - ised protocol offers custody services or facili - tates the trading of crypto-assets that qualify as transferable securities, it engages in regulated activities under MiFID. This can therefore create a complex regulatory scenario where, depending on the legal classification of the crypto-asset,
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