Europe’s MiCA regime puts smaller crypto firms under pressure

Decentralized impact investment platform Kula’s head of digital assets, Taran Dhillon, made a similar point, telling Cointelegraph that “one-size-fits-all” authorization, governance and reporting requirements risk pushing early-stage teams and experimental projects to other hubs.

Related: Poland stalls on crypto law, forcing local companies to move abroad

DeFi in the gray zone

MiCA’s exemption for fully decentralized services in Recital 22 is one of the main pressure points for protocols trying to comply without abandoning their designs.

Pinnock said Altura runs non-custodial strategies where users retain control, but elements like unified vaults and coordinated front ends may still attract scrutiny. Many DeFi systems, he expects, will be treated as hybrids, with factors like upgradeability and whether there is an identifiable operator influencing outcomes determining their classification.

Related: ECB paper questions if DeFi DAOs are decentralized enough to sit outside MiCA

To adapt, Altura is building a model where core functions remain onchain while regulated exchanges, custodians and wallets act as access points for EU users. Dhillon, meanwhile, says the decentralization exemption remains too ambiguous, leaving most protocols in “regulatory limbo,” with prolonged uncertainty that could push responsible innovation offshore.

Regulators and the centralization debate

EU supervisors insist MiCA was designed to balance innovation with investor protection, not drive out smaller firms. A European Securities and Markets Authority (ESMA) spokesperson told Cointelegraph the framework supports innovation and fair competition, and the transitional period was deliberately structured to give existing providers time to adapt. Requirements are proportionate to risk, they stressed, with smaller firms not expected to meet the same bar as systemically important players.

ESMA supports the Commission’s proposal on market integration. Source: ESMA

ESMA fully backs the European Commission’s push to centralize supervision of major cross-border exchanges at the EU level, arguing a single supervisor would reduce forum shopping and streamline oversight. Others, such as Malta’s Financial Services Authority (MFSA), see that move as premature given how recently MiCA came into force, and warn that local knowledge remains crucial for proportionate supervision in smaller markets.

MiCA a filter, not a threat

If smaller founders see MiCA as an existential hurdle, early movers like CoinJar frame it as a filter that will strengthen the market. CEO Asher Tan told Cointelegraph the rules do not create an unlevel playing field so much as bring crypto in line with “serious financial frameworks.”

Tan views Europe as a core growth market and says MiCA gives it a clear, passportable path to scale across the bloc. He claims MiCA is nudging the industry away from speculative, poorly understood tokens toward selective listings and long-term value — even if that accelerates consolidation and makes life harder for lightly capitalized newcomers.

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