Aave News Today: EU’s Crypto Reform Ignites Discussion: Balancing Innovation and Stability Under Centralized Regulation

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Aave News Today: EU’s Crypto Reform Ignites Discussion: Balancing Innovation and Stability Under Centralized Regulation

Bitget-RWA2025/11/14 10:58

By:Bitget-RWA

- EU's ESMA gains direct regulatory authority over crypto firms under MiCA, aiming to unify fragmented national rules and address cross-border liquidity risks. - MiCA bans EU crypto firms from co-locating order books with non-EU platforms to prevent regulatory arbitrage and ensure fair market conditions. - France, Austria, and Italy push for standardized licensing, while member states resist centralized oversight despite compliance milestones like Aave Labs' MiCA approval. - Centralized supervision faces c

The European Union is stepping up its plans to unify crypto market regulation, with the European Securities and Markets Authority (ESMA) set to take on expanded oversight of all crypto-related businesses within the EU. This development, which falls under the Markets in Crypto Assets (MiCA) regulation,

seeks to resolve disparities

in how individual countries regulate the sector and to reduce risks linked to cross-border liquidity arrangements.

With the proposed changes, ESMA would have direct authority over "major" crypto companies, clearing entities, and exchanges,

adopting a model similar to the U.S. SEC's enforcement approach

. The European Commission's preliminary proposals,

shared before an official release

, detail a move for ESMA from setting standards to becoming a hands-on regulator with enforcement powers. This would include

giving ESMA authority to reassess national approvals

when a member state is found to have "failed in supervision," thereby limiting national flexibility in applying the rules.

Aave News Today: EU’s Crypto Reform Ignites Discussion: Balancing Innovation and Stability Under Centralized Regulation image 0

One of the main priorities of these reforms is the management of pooled order books, which have raised concerns about unclear regulatory boundaries. ESMA has stated that MiCA

forbids EU crypto companies

from sharing order books with platforms outside the EU or those not regulated by MiCA, aiming to avoid unregulated risks and maintain fair competition. Regulators

worry that pooling liquidity across borders

might subject EU investors to uncertain execution practices and regulatory loopholes. Supporters say pooled order books can boost liquidity and improve pricing, but opponents caution that enforcing these limits could lead to market fragmentation and increased trading expenses.

The drive for unified regulation has been

led by France, Austria, and Italy

, which have called for more precise MiCA guidelines to harmonize licensing and infrastructure standards. These countries, along with others, have voiced worries about inconsistent MiCA enforcement across the EU, with some authorities accused of fast-tracking licenses. For example, ESMA's review of Malta's crypto licensing found the country only "partially fulfilled expectations,"

exposing shortcomings in approval processes

Nonetheless, progress on compliance is being made.

Aave Labs, a DeFi platform, has recently obtained MiCA approval

to provide regulated stablecoin services throughout the EU. This authorization allows users to convert euros to crypto assets and back at no cost using Aave's Push feature,

reflecting the increasing acceptance of regulated onchain financial services

. This comes after Ireland has become a center for MiCA-compliant firms, with Kraken and

Aave

Labs both setting up branches there.

However, the Commission's proposals are encountering opposition from member states hesitant to relinquish control. The revamped ESMA would also

need an independent executive board

to oversee its operations, a step designed to strengthen accountability. The plan will require agreement from both the European Parliament and the EU countries, with

implementation timelines stretching into 2026

As the EU moves through this regulatory overhaul, opinions remain split. While centralized regulation is expected to enhance market stability, critics warn it may hinder innovation and fragment liquidity. For now, ESMA’s expanded mandate under MiCA marks a significant change in how Europe manages crypto regulation.

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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